Annual Report 2017

Together we are Fortescue

ABN 57 002 594 872 The year at a glance

TOTAL RECORDABLE INJURY FREQUENCY RATE FOR FY17 PRODUCTION

2.9 170.4MT FY16 – 4.3 SHIPPED

C1 COSTS REVENUE US$ US$ 12.82 /WMT 8.4 BILLION FY16 – US$15.43 /WMT FY16 – US$7.1 BILLION

CONTRACTS AWARDED TO ABORIGINAL TAX CONTRIBUTION COMPANIES AND JVs A$ A$ 1.95 BILLION 2 BILLION FY16 – A$1.8 BILLION FY16 – A$1.3 BILLION

GREENHOUSE GAS EMISSIONS FORTESCUE CARRIERS INTENSITY REDUCED BY 4 8% FY18 – COMPLETED FLEET FROM FY15 OF 8 ORE CARRIERS

About this report This report has been prepared for Fortescue’s stakeholders in line with Fortescue’s statutory and regulatory obligations. The Company is committed to becoming the safest, lowest cost, most profitable producer and the information within this report outlines Fortescue’s performance and the journey to realising this vision in a manner that reflects the Company’s core values.

This report provides a summary of Fortescue’s operations and financial position for the financial year ended 30 June 2017. All ferencesre to Fortescue, the Group, the Company, we, us and our refer to Fortescue Group Limited (ABN 57 002 594 872) and its subsidiaries. All references to a year are the financial year ended 30 June 2017 unless otherwise stated. All dollar figures are in US currency unless otherwise stated. Operating Corporate Sociial Overview Reserves and Resources Governance Financial Report Remuneration Report Corporate Information and Financial Review Responsibility 1

2017 ANNUAL REPORT LIMITED I METALS FORTESCUE 3 29 43 47 49 15 101 133 Contents Corporate DirectoryCorporate Governance Governance Report Financial Remuneration Report Operating and Financial Review Review and Financial Operating Reserves Ore and Mineral Resources Social Responsibility Corporate Overview About Fortescue

Fortescue Metals Group is a global leader in the iron ore industry, recognised for its unique culture, innovation and industry-leading development of world class infrastructure and assets in the , Western .

Since it was founded in 2003, Fortescue A natural extension of Fortescue’s Fortescue’s longstanding relationships has discovered and developed major supply chain, the fleet of eight with customers in China has grown iron ore deposits and constructed some Fortescue Ore Carriers were designed from the first commercial shipment of the most significant mines in the to complement the industry leading of iron ore in 2008 to the Company world. The Company is focussed on its efficiency of Fortescue’s port. now supplying 17 per cent of China’s vision of being the safest, lowest cost, seaborne iron ore and expanding into As the first Company in Western most profitable iron ore producer. Japan, South Korea and India. Australia to control a railway from Now producing 170 million tonnes outside the region of operation and As a proud West Australian Company, of iron ore per annum, Fortescue the first Company in the world to use Fortescue values its relationship has grown to be one of the largest CAT autonomous haulage technology with key stakeholders by working global iron ore producers and has been on a commercial scale, Fortescue is together to positively manage and recognised as the lowest cost seaborne continuing to introduce leading edge create opportunities for Aboriginal supplier of iron ore into China based technology across the business. people, build up communities, protect on Metalytics Resource Sector the environment and strengthen the Innovation in process and design is a Economics analysis. broader Australian economy. key component of Fortescue’s strategy Fortescue owns and operates integrated to efficiently and effectively deliver operations spanning three mine sites products from mine to market. in the Pilbara, the five berth Herb Elliott Port in Port Hedland and the fastest, heavy haul railway in the world.

Port Hedland HERB ELLIOTT PORT

Karratha Roebourne

Marble Bar BRIDGE Current operations Under development SOLOMON HUB Nullagine CHICHESTER HUB Firetail Cloudbreak Kings WESTERN HUB Christmas Creek

Tom Price NYIDINGHU

Paraburdoo Newman

FORTESCUE’S VISION To be the safest, lowest cost, most profitable iron ore producer

FORTESCUE’S VALUES Safety I Family I Integrity I Courage and Determination I Generating ideas I Empowerment I Frugality I Stretch targets I Enthusiasm I Humility

2 FORTESCUE METALS GROUP LIMITED I OVERVIEW OVERVIEW

Together we are Fortescue Chairman’s message AO

We’re proud of our diversity, the strength and contribution by each of our Directors and the benefits that diversity brings to our Board’s core strategic and governance role.

Our company has delivered a truly We continue to set challenging stretch • Education. Supporting higher outstanding result for 2017. targets for the organisation and in education and breakthrough research, FY17 have been delighted by the through the provision of PhD and We can all be proud of the disciplined outcomes that the team has delivered. post-doctoral scholarships and execution of a clear strategy to continue Significant improvement in safety, facilities throughout Australia. to reduce debt, optimise the production consistent production and securing from our world class assets, explore the lowest cost position into China are • Early childhood. Ensuring every low cost options for future growth measures of which we can all be truly Australian child has the best possible while achieving strong returns for all proud. chance to thrive, through initiatives of us, as shareholders. that will include the creation of a As a Board, we also farewelled Owen blueprint around the development Our vision to be the world’s safest, Hegarty and Geoff Raby, and thanked of children in the critical years, from lowest cost, most profitable iron ore them for their tremendous contributions conception to five years old, that can producer is firmly within our reach to Fortescue’s success over their become a global prototype. and the entire team has once again respective terms. demonstrated its outstanding capability, • Creating parity. Encouraging with Metalytics recognising Fortescue During FY17, our close engagement education, training and employment as the world’s lowest cost producer of with China continued and I was initiatives that help to remove seaborne iron ore to China – a genuinely delighted to join with other business obstacles in people’s lives and end exceptional achievement. A sustained and Government leaders to welcome disparity between Indigenous and focus on safety improvement and Premier Li to Australia during a visit non-Indigenous Australians. consistent production from our top tier that again underpinned the strength of mining and infrastructure assets places our two countries’ bilateral relationship. • Modern slavery. Making Australia our Company in the best position for We supported the prestigious Boao and the world safer by ensuring that the future. Forum for Asia as a Diamond Sponsor every child and adult can expect, for the ninth consecutive year, with and receives, freedom, through the Our Board leads and empowers the the Australia-China Business Leaders elimination of modern slavery globally. CEO and the entire Fortescue team to Forum continuing its influential achieve these results. During the year, • Communities. Supporting arts, meetings through the participation we have renewed and refreshed the culture, environmental, community of leading business contributors from composition of our Board, welcoming and small organisations that can make both countries. Ms Penny Bingham-Hall and Ms Jenn a big impact, particularly to the lives Morris as Non-Executive Directors. The closeness and mutual support of underprivileged communities and Penny brings a wealth of experience between Fortescue and our customers individuals. from her roles in construction and steel, and stakeholders mirrors the strength I would like to convey my sincere while Jenn contributes a perspective on of the engagement at the most senior congratulations and thanks to our CEO, building a performance culture, from her levels of Government and we value our Nev Power and the whole Fortescue team. background leading change management relationships very highly. Nev has provided the leadership and focus and as a dual Olympic medallist. Fortescue’s dividends have enabled to empower the team to again deliver Ms Elizabeth Gaines successfully Nicola and I, through the Minderoo against the challenging stretch targets transitioned from her role as a Non- Foundation, to continue our support for that we set for ourselves, generating Executive Director to take on the position major initiatives which now include: the outstanding returns for all of us, as of Chief Financial Officer and become a shareholders in this great Company. • Cancer. Working with the finest key member of the Executive team. minds and institutions in Australia It is through building success in We’re proud of our diversity, the and internationally in collaborations our business that we can support strength and contribution by each of that will make cancer non-lethal for the communities in which we operate our Directors and the benefits that the coming generation and eventually and Fortescue has once again diversity brings to the core strategic and a disease that does not profoundly demonstrated its commitment and governance role that our Board provides. impact people’s lifestyles. ability to do just that.

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I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE I am a strong believer in encouraging other Australians other Australians in encouraging believer I am a strong and other energy but their time, not just money, give, to some of in addressing that can make a difference resources with give is to challenge The issues. most complex society’s so that maximum heart, cleverly your give mind and soul; to the longer term. impact over is achieved with the Minderoo Foundation Nicola and I founded a hand up rather than a of giving the belief in the power see this philosophy pride to hand out. It me great gives every at Fortescue demonstrated day. their efforts and support. for thank everyone at Fortescue We Fortescue has performance outstanding financial The of all shareholders. benefited use our chosen to Nicola and I have shareholders, As fund the importantdividends to of the Minderoo work that support to programs to and contribute Foundation world. the over all makingare a difference in Australia and across and across in Australia announces Foundation Minderoo of A$400m donation ever largest not just money, but their time, energy and other resources that can that and other resources energy but their time, not just money, issues.” complex most some of society’s in addressing a difference make “ I am a strong believer in encouraging other Australians to give, to give, other Australians in encouraging believer I am a strong “ In 2017, Nicola May of announcing and I had the honour strengthen be used to a donation of A$400 million to and supportcommunities vulnerable and disadvantaged and overseas. people in Australia the Fortescue to in this privileged position thanks are We of everyone and dedication work the hard through It’s family. has been funded, that the Minderoo Foundation at Fortescue support to a wide received, have the dividends we through initiatives range of philanthropic the globe. A$400 million donation will capitalise on and expand The and its partners, of the Minderoo Foundation the work in Australia and initiatives as fund new programs as well areas: on the following focussing the world, and around • Cancer • Education • Early childhood parity • Creating • Communities • Modern slavery Chief Executive Officer’s report Nev Power

Fortescue’s culture is underpinned by our safety and family values. We know that the importance of looking out for our mates and ourselves resonates very strongly across our business.

During FY17, Fortescue has achieved Consistent production was sustained The construction of the ore carriers excellent results by delivering against in FY17 with delivery of 170.4 million at China’s Jiangsu Yangzijiang and the key elements of our strategy. All of tonnes from our mining operations Guangzhou Shipbuilding International our focus has been on debt repayment at the Chichester and Solomon Hubs shipyards is another example of and capital flexibility, investment in the through our world class port and rail Fortescue’s successful efforts to expand long term sustainability of our core iron infrastructure. Responsiveness to our our collaboration with Chinese industry. ore business and developing low cost customers’ needs has driven refinements Fortescue’s financial results reflect the growth options, while generating to our product strategy, meeting the excellent operating outcomes, with net strong returns for our shareholders. core requirements of quality, timely profit after tax of US$2,093 million, delivery and flexibility. Safety performance has continued an increase of 112 per cent compared to to improve across the business and Four new ore carriers were delivered FY16. Revenue for the year increased we are pleased to report a 33 per cent during FY17 with an additional four by 19 per cent from US$7,083m to reduction in Total Recordable Injury to be delivered during FY18, further US$8,447m, with sustained cost Frequency Rate (TRIFR) for the year. enhancing the industry leading reductions contributing to strong cash efficiency of our port operations. flows. We have continued to reduce The results of our Safety Excellence and our debt during the year repaying a Culture Survey have again demonstrated Cost performance has been a core further US$2.7 billion, with net gearing a high level of engagement by all of our element of Fortescue’s success in FY17. ratio now at 21 per cent and our teams. With a participation rate of 92 With our sustained productivity and nearest term debt maturity in 2022. per cent and improvement across all key efficiency focus, costs have reduced a Disciplined capital management, further measures, the survey indicates that we further 17 per cent compared to FY16. strengthening our balance sheet and are heading in the right direction and From November 2016, Fortescue’s generating returns for our shareholders have a solid foundation in place to build position as the lowest cost provider remain our key priorities. further on these achievements. of seaborne iron ore to China has been recognised and maintained by Our commitment to communities Fortescue’s culture is underpinned Metalytics Resource Sector Economic ensures they benefit from the growth by our safety and family values. We analysis. and development of our business. know that the importance of looking This year we delivered more training, out for our mates and ourselves Guidance for our C1 cost of US$11-12 employment and business development resonates very strongly across our will ensure that our cost reduction opportunities for Aboriginal people and business, providing us with core momentum journey is sustained, as we our award-winning Billion Opportunities shared goals that will foster optimise technology and innovation program grew to almost A$2 billion ongoing improvement. across all areas of the business. in contracts awarded to Aboriginal businesses and joint-ventures since the Diversity remains a key focus as China’s growth continues to underpin program’s inception in 2011. we build a workforce that is truly demand for steel with the emerging representative of our community markets in Asia also participating This year has been marked by recognition and embraces diversity of thinking in regional growth through China’s of Fortescue’s success externally and to foster ongoing innovation across visionary One Belt One Road strategy. we were proud to receive a number the business. Building on our Fortescue’s relationship with China was of industry awards during FY17. I have successful Aboriginal employee strengthened further with a financing had the honour of accepting a number engagement programs, throughout agreement with China Development of these awards on behalf of the the year we have implemented the Bank Financial Leasing Co., Ltd (CDB Fortescue team, all of which have been practical initiatives needed to create a Leasing) for the ore carrier fleet, made possible by the great efforts and welcoming, supportive and encouraging representing the largest direct funding hard work of all of our employees and environment for women. arrangement provided by a major contractors. Today, 15.8 per cent of our workforce is Chinese financier for a non-Chinese My sincere congratulations and thanks Aboriginal and 17.3 per cent female. company in Australia. go to all of the Fortescue team for their contributions to an outstanding year.

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I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE members, benefitted from tailored job share and flexible job share tailored from benefitted members, working arrangements. leave increased as did the number of females, with 94 per as did the number of females, increased leave leave parental from returning employees of female cent In addition to this, we were very proud to announce in announce very to proud were we Inthis, addition to Company ASX 20 was the first 2016 that Fortescue November more Today, of Directors. women on our Board five have to female. members are of our Board than 50 per cent Networking Business Update host two to I was also delighted and particularly working parents for mothers and events is supporting Fortescue talk about how expectant to mothers, the while also hearing directly from workforce, a diverse work to returning can assist parents we community on how after starting a family. • The number of males accessing primary carer’s paid parental paid parental primary number of males accessing The carer’s • based team including site employees, 248 Fortescue •

Fortescue’s commitment to diversity commitment Fortescue’s women directly enhances Fortescue’s success by improving its diversity. its diversity. improving by success Fortescue’s directly enhances women practical solutions to by providing difference a real to make want We in the workplace.” support and parents women “ Creating a welcoming, supportive and encouraging environment for for environment supportive and encouraging a welcoming, Creating “ women, up from 20 per cent in 2016 20 per cent up from women, female are program in as a short-termin Perth service crèche In FY17, Fortescue continued to foster a culture that truly embraces and celebrates and celebrates truly embraces that a culture to foster continued In FY17, Fortescue our Company. across diversity need the very we best can be, we be the best Company To best ideas The every across partideas, of our business. range with a broad teams workforce: a diverse from come skills, and personalities and to experience of backgrounds, our talented ensure need to we make our business strong, the opportunity and fully their potential have reach women to Fortescue. to contribute increasing important took Fortescue towards steps year, This to implement workable to measures determined diversity, change. make a real 17.3 per cent reached employment • Overall female held by now of management positions are 23.6 per cent • Up Trade of participants 25 per cent Close to in the • Centre Room opened in the Fortescue Family Fortescue The • Value chain

Innovation in process and design has been a key component of Fortescue’s strategy in challenging industry standards to more efficiently and effectively deliver its product suite from mine to market

1 Exploration and discovery Challenging geological thinking to identify valuable deposits

2 Extraction and recovery Innovative use of technology suitable to Fortescue’s deposits

3 Processing Ore processing facility design and wet processing optimise output 4 Mine to port Heaviest haul rail at 42t axle load

5 Blending and stockpiling Port design facilitates blending and stockpiling of product suite

6 Ship loading • 3 shiploaders • 5 berths maximise outload capacity and utilisation 7 Marketing Helping customers achieve best value in use

8 Shipping • Delivery to Fortescue’s international customers’ specifications • 8 Fortescue Ore Carriers

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2017 ANNUAL REPORT

I Corporations Corporations FORTESCUE METALS GROUP LIMITED METALS FORTESCUE , ASX Listing Rules and the Company’s constitution. constitution. , ASX Listing Rules and the Company’s The Board has established Committees to assist in the to has established Committees Board The that important ensure of its duties and to and execution The consideration. appropriate given issues are complex the Remuneration and are primary of the Board Committees and Risk Management the Audit Nomination Committee, has Each Committee Committee. and the Finance Committee Charter under its own Chair and operates a non-executive the Board. by which has been approved ethically and expected act to are Directors independently, of the requirements with all relevant comply 2001 Act ethical and responsible actively promotes Company The of Conduct that decision making its values and Code through identify, to process is a formal There embodies these values. should conflictsdisclose and manage potential of interest, Chair and the Lead Vice of the roles In this regard, they arise. the that ensures a cornerstone Independent are Director equally. protected are of all shareholders interests primary have and each of its three Board Committees The their performance evaluate to annually. established a process and interview questionnaire is based on a formal process The and supported consultant an independent conducted by was review most recent The Secretary. the Company by results The 2017. in February Young undertaken Ernst & by for reported the full Board to are and recommendations further of improvement and agreement consideration required. actions, where non-executive of this report, has seven the date the Board At being Chief Executive directors executive and two directors (CFO), Financial Officer and Chief Power, (CEO),Officer Mr Nev appointment executive Ms Gaines’ Ms Elizabeth Gaines. her appointment as the CFO on subsequent to followed 2017. 6 February director acted as an executive Mr Pearce Stephen Previously, Board The on 23 September 2016. his resignation prior to and mix of non-executive that an appropriate believes strong role and provides to its is beneficial directors executive The Board the business. operational and financial insights into of two executive complement has maintained a consistent years. in recent directors of directors is intended is intended of directors tor training and consideration training and consideration tor strategy setting process conducted with executive and conducted with executive setting process strategy senior management visits and site tailored all major business areas, regarding operational locations to tours annual site their understanding of the Company’s and strengthen key markets meet with management and staff. to The Board The The primary driver for the Board in seeking primary the Board The new directors for driver the needs of to is skills relevant which are and experience shareholders. to its responsibilities discharging in the Board candidates policy Board assess all potential is to Fortescue’s sexuality, ability, physical age, gender, race, to without regard other factor not relevant or any beliefs, religious nationality, and performance. their competence to appointment and reappointment The quality of the Board the overall maintain and enhance to which reflects of skills, a diversity a composition through gender and age. experience, comprehensive a members benefit from All new Board that supportsinduction process their understanding of is also a range of support There given business. Fortescue’s strongly stay members which enables them to Board to include: These and its culture. the Company connected to to the annual contribution Opportunities significant for • management and senior executive Regular briefings from • meet with key customers China to Biannual visits to • opportunities the directors and informal for Regular formal • also undertake directors The an annual competency as a whole, whether the Board, evaluate self-assessment to mix of skills to maintains an appropriate and experience Opportunities for improvement role. its fulfil effectively direc into incorporated are appointments. new director for Fortescue has a talented and diverse Board committed to enhancing and protecting to enhancing committed Board and diverse has a talented Fortescue fulfilling a strong and other stakeholders and of shareholders the interests affairs. the Company’s over role governance Overview The Board

The Board is responsible to the shareholders for the performance of the Company. Its focus is to enhance and protect the interests of shareholders and other key stakeholders and to ensure that the Company is properly managed.

L-R Non-Executive Director Jennifer Morris, Chief Financial Officer and Executive Director Elizabeth Gaines, Chief Executive Officer and Managing Director Nev Power, Non-Executive Director Sharon Warburton, Chairman Andrew Forrest AO, Non-Executive Director Jean Baderschneider, Lead Independent Director Mark Barnaba AM, Non-Executive Director Penny Bingham-Hall, Non-Executive Director Cao Huiquan

Andrew Forrest AO Mark Barnaba AM Chairman Lead Independent Director Appointed Chairman in July 2003. Lead Independent Director since November 2014; Chief Executive Officer in 2005 to July 2011. Non-Executive Director since February 2010.

Mr Forrest is Fortescue’s Founder and is also the Founder and Effective 1 September 2017, Mr Barnaba is a member of the Chairman of the Minderoo Foundation, Australia’s largest Board of the Reserve Bank of Australia. He is also Chairman philanthropic organisation which operates GenerationOne, of the State Theatre Company of Western Australia, and is an The Australian Employment Covenant and Walk Free. Adjunct Professor of Finance and Investment Banking at the In 2013, Mr Forrest was appointed by the Prime Minister University of Western Australia. to Chair the Indigenous Jobs and Training Review. He was He is co-founder of Azure Capital and has previously served named Western Australia’s nominee as Australian of the Year as Chairman of Western Power Corporation, The West Coast in 2016 and West Australian of the Year in 2017 in recognition Eagles AFL Club and Alinta Infrastructure Holdings. In 2011, of his outstanding contribution to the community. he was appointed by the Premier to chair the WA Steering Mr Forrest also founded, developed and funded the Murrin Committee of the Commonwealth Business Forum for Murrin nickel and cobalt operation, one of the largest CHOGM. Previously, Mr Barnaba worked for McKinsey and producers of nickel and cobalt in the world. Murrin Murrin is Company and also recently held several senior executive roles considered by experts to be the most successful, and lowest at , where until 31 August 2017, Mr Barnaba capital and operating cost operations of all the new wave of served as Chairman and Global Head of Natural Resources for laterite nickel producers. Macquarie Capital. A leading representative and advocate for the resources Mr Barnaba holds a Bachelor of Commerce (Honours) sector globally, Mr Forrest is an Adjunct Professor of the China from the University of Western Australia and a Master of Southern University and is a Fellow of the Australian Institute Business Administration with High Distinction from Harvard of Mining and Metallurgy. Business School. He is a Fellow of the Australian Institute of Company Directors. Committee membership: Remuneration and Nomination Committee (Member), Finance Committee (Member) as at Committee memberships: Audit and Risk Management 30 June 2017. Finance Committee (Chair) as at 19 July 2017. Committee (Chair) and Remuneration and Nomination Committee (Member).

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I tors Foundation. tors Foundation.

Finance Committee (Member), Committee Finance FORTESCUE METALS GROUP LIMITED METALS FORTESCUE

omenCorporateDirec She holds a Bachelor of Arts (Industrial Design). listed entities): directorshipsOther (ASX current Director), (Non-Executive Limited BlueScope Steel Director). (Non-Executive Property Group Membership: Committee (Member). and Risk ManagementAudit Committee Cao Huiquan Cao Director Non-Executive 2012 (nominated February since Director Non-Executive Ltd). Company Group Iron and Steel Valin Hunan from director Iron and Steel Valin the Chairman of Hunan Mr is currently Cao Officer of and Chairman and Chief Executive Ltd Co Group Ltd. Co Steel Valin Hunan in 1991 and Ltd Co He joined Hunan Xiangtan Iron & Steel General Managerwas appointed in 2003. In 2005, he was Ltd Co Steel Valin Officer of Hunan Chief Executive appointed held the position of General Manager of and concurrently Ltd. Co Group Iron and Steel Lianyuan Jean Baderschneider Jean Baderschneider Director Non-Executive January since Director 2015. Non-Executive in 2013 following ExxonMobil from Dr Baderschneider retired operations for she had responsibility where career a 30-year of Global Vice-President and served the world as around with high-risk deep experience She has Procurement. partnerships. complex operations/locations and of Directors past member of the Board Dr Baderschneider is a Supply Management. She servedof the Institute for on the Purchasing Advanced for Center The of Board Executive The of both Council and the Procurement Studies (CAPS) She also Board. Executive Corporate and Board Conference of the National Minority Board served on the Executive and was the Presidential Council Supplier Development National the US Department to appointee of Commerce’s Advisory of Minority Council Business Enterprises. Bingham-Hall Penny Director Non-Executive 2016. November since Director Non-Executive skills operational Ms Bingham-Hall brings significant and at Head of Strategy including roles executive from experience construction, largest CIMIC) Holdings (now – Australia’s Leighton infrastructure and propertycontract mining, group development director. as a company experience with 20 years’ – together Institute of of the Australian Ms Bingham-Hall is a Fellow Securities of the Financial a Senior Fellow Directors, Company Executive and a member of Chief Institute of Australasia W and Women

NEXTDC Limited (Non-Executive Director), Mantra Director), NEXTDC (Non-Executive Limited The Board The Elizabeth Gaines Director Executive and Officer Chief Financial February since Director Executive Officer and Chief Financial 2013. February since Director Non-Executive 2017; Former Officer with Ms Gaines Chief Financial is a highly experienced in all aspects experience international of financial, extensive Gaines management. Ms treasury has held and commercial Australia and the UK in a Officer roles in Chief Financial number of sectors including construction and infrastructure, Ms Gaineshighly is and hospitality. and travel agribusiness in global debt and capital markets. experienced Officer of Helloworld Chief Executive Ms Gaines is the former and HeytesburyLimited Pty and has also held the Limited Group and OfficerStella at the position of Chief Financial Entertainment Rights Plc. and New Australia A member of Chartered Accountants and Directors Institute of Company the Australian Zealand, Ms Gaines holds a Bachelor of Women, Chief Executive degree. and Master of Applied Finance degree Commerce Listed (ASX directorships years in the last three Former Entities): Nine Director), Entertainment (Non-Executive Limited Group lmpediMed Director), (Non-Executive Holdings Limited Co. Limited Helloworld Director), (Non-Executive Limited Director). (Executive Chief Executive Officer and Managing Director and Managing Officer Chief Executive Officer 2011; July Director since Managing Chief Executive September 2011. since mining, in the experience than 30 years’ has more Mr Power track record and constructionsteel and a proven industries in the delivery mining and of major infrastructure projects, manufacturingsteel distribution. and held Chief Executive Mr Power Fortescue, joining to Prior Fortescue’s As Group. Steel and Smorgon Thiess positions at Company’s has led the Power Mr Officer, Chief Executive safety to commitment based culture, values strong, the Billion and to diversity improving to excellence, close to Opportunities which has awarded program Mr businesses. Power A$2 billion in contracts Aboriginal to also has a long history holding and aviation in agribusiness pilot licenses. commercial helicopter wing and both fixed of the development for advocate is a passionate Mr Power their reach to its communities northern and for Australia full potential. and the AusIMM Australia of both Engineers He is a Fellow Institute of Company and a member of the Australian Lingnan Advisory the International and for Directors Board is a Mr Power University. Yat-sen Sun College, (University) and and holds a Bachelor of Engineering INSEAD graduate, a Master of Business Administration. Nev Power Nev Power The Board

Jennifer Morris Owen Hegarty Non-Executive Director Vice Chair Non-Executive Director since November 2016. Mr Hegarty was appointed Vice Chair in November 2014 having served as a Non-Executive Director since Ms Morris is a former partner in the Consulting Division of October 2008. Deloitte, where she specialised in complex large-scale business transformation programs, and strategy development. She Mr Hegarty has 40 years’ experience in the global mining also has extensive applied expertise in leadership and a industry, including 25 years with the group. demonstrated understanding of how to design and deliver a performance culture and high performing teams to deliver Mr Hegarty retired from Fortescue’s Board in December 2016. sustained and thriving performance at the elite level.

She currently serves as Chief Executive Officer of the Walk Stephen Pearce Free Foundation and is a Commissioner of the Board of the Chief Financial Officer and Executive Director Australian Sports Commission. Mr Pearce was appointed as an Executive Director in June Ms Morris is a Fellow of Leadership WA, a member of the 2016, after joining Fortescue in March 2010. Mr Pearce has Australian Institute of Company Directors, an affiliate member more than 20 years’ experience in senior management roles of Chartered Accountants Australia and New Zealand and in the mining, oil and gas and utilities industries. dual Olympic gold medallist. She holds a Bachelor of Arts Mr Pearce resigned from Fortescue’s Board in September 2016 (Psychology and Journalism) and completed the Finance for and resigned from his position as Chief Financial Officer in Executives at INSEAD. December 2016. Committee Membership: Remuneration and Nomination Committee (Member), Audit and Risk Management Geoff Raby Committee (Member). Non-Executive Director Sharon Warburton Mr Raby was appointed as a Non-Executive Director in August Non-Executive Director 2011. He formerly served as Australia’s Ambassador to the People’s Republic of China between 2007 and 2011. Non-Executive Director since November 2013 and appointed Vice Chair as at 19 July 2017. Mr Raby retired from Fortescue’s Board in December 2016 and continues to work with Fortescue in a consultant capacity, Ms Warburton has extensive experience in the mining, assisting with China relations. infrastructure and construction sectors. She gained substantial operational, commercial and risk management Alison Terry experience in the global resources sector through her time as Company Secretary an executive at Rio Tinto. She has also previously held senior executive positions at Brookfield Multiplex, ALDAR Properties Ms Terry was appointed Company Secretary in February 2017, after PJSC, Multiplex and Citigroup. joining Fortescue in 2014 as Group Manager Corporate Affairs.

In 2016, she was appointed Chairman of the Northern Australia With significant experience in corporate affairs, legal, Infrastructure Facility and currently serves as a Director at company secretarial and general management, Ms Terry has Western Power and the Perth Children’s Hospital Foundation. previously held senior executive and Board roles across a number of sectors including automotive, telecommunications Ms Warburton is a Fellow of the Institute of Chartered and superannuation. Accountants Australia and New Zealand, a graduate of the Australian Institute of Company Directors, a Fellow of Australian She holds a Bachelor of Economics and Bachelor of Laws Institute of Building and a member of Chief Executive Women. (Honours) and a Graduate Diploma of Business (Accounting).

Other current directorships (ASX listed entities): Gold Road

Resources Limited (Non-Executive Director), NEXTDC Limited Ian Wells (Non-Executive Director). Company Secretary Mr Wells was appointed as Company Secretary in February Former directorships in the last three years (ASX Listed 2015, after joining Fortescue in 2010 as Group Manager, Entities): Wellard Limited. Treasury and Business Planning. Committee membership: Remuneration and Nomination With more than 20 years’ experience in senior finance and Committee (Chair) and Finance Committee (Chair) as at management roles in the mining, energy infrastructure and 30 June 2017. healthcare industries, Mr Wells was previously Chief Financial Vice Chair, Remuneration and Nomination Committee (Chair), Officer at Singapore Power subsidiary Jemena Limited and Audit and Risk Management Committee (Member) and holds a Bachelor of Business in Accounting and is a graduate Finance Committee (Member) as at 19 July 2017. of the Australian Institute of Company Directors.

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Overview Governance Financial Report Remuneration Report 13 and Financial Review and Mineral Resources Responsibility

Huston, Huston, s, 2017 ANNUAL REPORT

I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Greg Lilleyman Lilleyman Greg Operations Director in JanuaryMr Lilleyman joined Fortescue in experience 28 years’ over With 2017. he brings a wealth the mining sector, of industry knowledge with a personal with aligned strongly style and approach values and culture. Fortescue’s His in leading experience extensive and operational excellence safety with his thorough combined technology knowledge and passion for further for provides and innovation strong of Fortescue’s development performance. operational and cost Ms Gaines assumed the role of Ms Gaines assumed the role February Officer in Chief Financial Chief 2017. A highly experienced as Officer regarded and Financial expert,a financial and governance Ms Gaines global, brings significant and operational experience commercial a range of industryfrom sectors to highly Fortescue’s complement team. capable finance of Director’s the Board to Please refer details on section more on page 11 for experience. Ms Gaines’ Elizabeth Gaines Officer Chief Financial Director External Relations Tim Langmead, Group Manager Fortescue People Linda O’Farrell, Chief Executive Officer Nev Power, Power, Officer Nev Chief Executive Linda O’Farrell, People Manager Fortescue Group Langmead, Tim ExternalDirector Relations Peter Corporate ServicesCounsel Director and Chief General Terry, Alison Secretary Affairs Manager Corporate and Group Company Watson Manager Robert Health and Safety Group Liu, Sales and Marketing Director David L-R: Director Business Development Tony Swiericzuk, Director Operations Greg Lilleyman, Chief Financial Officer Elizabeth Gaine Chief Financial Lilleyman, Swiericzuk, Operations Greg Director L-R: Tony Business Development Director Fortescue’s executive team is accountable for the safety of its people, upholding the of its people, the safety for is accountable team executive Fortescue’s its achieve and leading the business to acting values, with integrity honesty, and Company’s world. in the producer ore iron most profitable cost, lowest the safest, vision of becoming Executive team Executive leadership Fortescue’s Mr Power was appointed Chief was appointed Mr Power Officer in July 2011 and Executive experience than 30 years’ has more construction and steel in the mining, joining Fortescue, Before industries. positions at he held Chief Executive Group. Steel and the Smorgon Thiess of Director’s the Board to Please refer details on section more on page 11 for experience. Mr Power’s Nev Power Nev Power Officer Chief Executive Executive team

Peter Huston Linda O’Farrell Rob Watson Director Corporate Services Group Manager Fortescue Group Manager Health and Safety and Chief General Counsel People Mr Watson was appointed Group Mr Huston brought over 20 years’ Ms O’Farrell joined Fortescue in October Manager Health and Safety in 2014 after experience in legal and corporate 2013 as Group Manager Fortescue joining Fortescue in 2011. Prior to this advisory roles when he joined People, joining the executive team in Mr Watson spent 15 years in a number of Fortescue as Chief General Counsel in December 2014. Having held a number senior corporate health and safety roles January 2005. Mr Huston joined the of executive human resources roles in in large mining companies. executive team in January 2009. major Australian resource companies, His career in health and safety spans Ms O’Farrell brings strong experience in Prior to joining Fortescue, Mr Huston over 25 years in a number of industries strategic people management, diversity spent 12 years as a partner of the law and commodities. Mr Watson holds and Aboriginal employment. firm now known as Norton Rose and a Masters in Occupational Health 10 years in private equity, mergers Ms O’Farrell holds a Bachelor of and Safety. and acquisitions. Economics (Honours in Industrial Relations) from the University of Nick Cernotta Tim Langmead Western Australia. Director Operations Director External Relations Tony Swiericzuk Mr Cernotta was appointed as Director, Mr Langmead was appointed Director Operations in March 2014 with more Director Business Development External Relations in January 2014, after than 30 years experience in the mining joining Fortescue as Group Manager Mr Swiericzuk was appointed Director industry, spanning various commodities Corporate Affairs in January 2013. Business Development in April 2017. and operations in Australia, Africa, South Mr Swiericzuk started his career at East and Central Asia, Saudi Arabia and Previously, Mr Langmead held senior Fortescue in 2009 as General Manager Papua New Guinea. corporate affairs roles in the Australian Port and later General Manager business units of global oil and gas Mr Cernotta resigned from Fortescue on Christmas Creek, overseeing the ramp companies. Mr Langmead served in 31 January 2017. up of operations at both sites. senior staff roles for Ministers in the Howard-Anderson and Howard-Vaile With more than 20 years of industry governments and commenced his knowledge, Mr Swiericzuk’s previous Peter Lynch career as an agribusiness journalist. experience is diverse and includes Director Business Development material handling, rail, port, steelworks It is with great sadness to report that in Australia and Indonesia. David Liu Mr Peter Lynch, Fortescue’s Business Mr Swiericzuk holds a Bachelor of Development Director tragically died Director Sales and Marketing Engineering degree (Honours in Mining in an aircraft incident in Perth on and Mineral Engineering) and a Master Mr Liu joined Fortescue in 2003 and January 26, 2017. was appointed as Director Sales and of Business Administration. Marketing in 2011 following the Mr Lynch joined Fortescue in June 2016 with over 28 years’ of experience in the completion of his post-graduate studies Alison Terry at the University of Western Australia. Australian and global mining sector Company Secretary and Group including coal, copper, gold, lead, Having spent nearly 30 years in Perth, Manager Corporate Affairs and zinc. Mr Liu has strong experience in trade and investment projects between Ms Terry was appointed Company In his short time at Fortescue, Peter Australia and China. Mr Liu brings Secretary in February 2017, after joining had already been integral in the a deep understanding of Asian, Fortescue in 2014 as Group Manager development of Fortescue’s exploration particularly Chinese, culture and Corporate Affairs. projects and was an impressive leader who loved to recognise his team for business practices to Fortescue’s With significant experience in their efforts. strategy of securing long-term corporate affairs, legal, company partnerships with the major steel secretarial and general management, Fortescue would like to extend its mills in Asia. Ms Terry has previously held senior deepest sympathies to the family, executive and Board roles across friends and colleagues of Peter once a number of sectors including again; he is deeply missed by automotive, telecommunications and everyone at Fortescue. superannuation.

Ms Terry holds Bachelor of Economics and Bachelor of Laws (Honours) and a Graduate Diploma of Business (Accounting).

14 FORTESCUE METALS GROUP LIMITED I OVERVIEW OPERATING AND FINANCIAL REVIEW

Overview

FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 15 Operating and financial highlights

PRODUCTION C1 COSTS US$ 170.4 MT 12.82 /WMT

REVENUE CASH ON HAND US$ US$ 8.4 BILLION 1.8 BILLION

UNDERLYING EBITDA DEBT REPAYMENTS US$ US$ 4.7BILLION 2.7 BILLION DEBT RETIRED

NET PROFIT AFTER TAX NET DEBT US$ US$ 2.1 BILLION 2.6 BILLION

16 FORTESCUE METALS GROUP LIMITED I OPERATING AND FINANCIAL REVIEW Operating Ore Reserves Corporate Social

Overview Governance Financial Report Remuneration Report Corporate Directory 17 and Financial Review and Mineral Resources Responsibility

2017 ANNUAL REPORT

I CLOUDBREAK CHRISTMAS CREEK CHRISTMAS FORTESCUE METALS GROUP LIMITED METALS FORTESCUE haulage autonomous CAT deployed successfully Fortescue at the Solomon Hub in 2012, achieving a (AHS) technology in productivity. improvement 20 per cent the expansion announced Fortescue During the year, mines to and Firetail Valley of AHS at both the Kings productivity the site. further across improve

MTPA

CAPACITY

70 -75 PRODUCTION The Chichester Hub in the Chichester Ranges, comprising Ranges, comprising Hub in the Chichester Chichester The has an annual mines, and Christmas Creek the Cloudbreak Processing Ore production three capacity of 100mtpa from sustained output delivered and Consistent (OPFs). Facilities continue to Fortescue the OPFs has allowed from enhanced through optimisation of its product strategy and upgrades iron blending and beneficiation, increasing mining in lower has resulted This impurities. reducing furthercut-off bodies and sustainably grades, optimising ore strip ratios. reducing Operations Centre Integrated During FY17, Fortescue’s (IOC) and include Christmas Creek expanded to in Perth as Christmas Creek’s as well mine control, Cloudbreak’s operation utilises the latest remote The mine planning. and reliability safety, improved and ensures technology efficiency of the operation. of AHS at the Solomon Hub, Building on the success of AHS at the the rollout the implementation plan for Company The FY18 is underway. Hub from Chichester conveyor relocatable in an innovative is also investing mine. be trialled at the Cloudbreak to Chichester Hub The Solomon the Hamersley Ranges Hub in The is located and 120km the west to Price 60 kilometres (km)Tom north of and It the Firetail comprises Hub. Chichester of Fortescue’s production capacity have mines which together Valley Kings annum (mtpa). Solomon per 75 million tonnes of 70 to blending of production by a valuable source represents phosphorous with low ore Firetail cost low higher grade, blend. the high quality Fortescue create to ore Chichester Solomon Hub Overview operations of Overview of operations

Port and Rail

Fortescue wholly owns and operates its purpose designed rail A natural extension of Fortescue’s supply chain, the Company’s and port facilities, constructed to deliver iron ore from its mines ore carriers were designed to complement the industry to Port Hedland and on to its customers. Covering 620km of leading efficiency of Fortescue’s port. FMG Nicola, Grace, track, the railway is the fastest, heavy haul line in the world. Sophia and Sydney made their maiden voyage into Herb Elliot Port in FY17. The remaining four vessels will be delivered by The efficient design and layout, optimal berthing mid-2018. configuration and ongoing innovation to increase productivity makes Fortescue’s port the most efficient bulk port operation in Australia. The port has five operating berths and is capable of efficiently exporting more than 170mtpa.

Iron Ore projects FIRETAIL REPLACEMENT Firetail is an important component of the Fortescue Blend PROJECT product and the replacement strategy will ensure the Company maintains the integrity and quality of its product EXPECTED range. During FY17, Fortescue continued to study all options DECISION FY18 for the Firetail replacement project with a decision between the Western Hub and Nyidinghu expected during FY18.

Iron Bridge, located 100km south of Port Hedland, is a joint venture between Fortescue, Taiwan’s Formosa Group and China’s Baosteel Resources Ltd, a subsidiary of China’s Baowu Group incorporating the world class North Star and Glacier Valley Magnetite ore bodies. Building on the development of a large scale pilot plant and successful testing of an innovative, low cost production process already completed, future developments will deliver product via a pipeline to storage and handling facilities in Port Hedland. This will be subject to market conditions and approval by joint venture partners.

Exploration

Fortescue holds the largest tenement portfolio in the Pilbara. During the year Fortescue continued to undertake early stage, Details of the Company’s reserves and resources are low cost exploration on copper-gold prospective tenements in summarised in the Ore Reserves and Minerals Resources and and assessed high potential, Report on pages 29 to 42. Exploration activity in FY17 was early stage exploration tenements in Ecuador, where Fortescue primarily focussed on Fortescue’s iron ore tenements to was granted 32 exploration areas. This exploration is in line with maintain mine life and sustain product quality in the Fortescue’s strategy of focussing on its core iron ore business Company’s core iron ore business. while creating low cost future optionality.

18 FORTESCUE METALS GROUP LIMITED I OPERATING AND FINANCIAL REVIEW Operating Ore Reserves Corporate Social

Overview Governance Financial Report Remuneration Report Corporate Directory 19 and Financial Review and Mineral Resources Responsibility

% /wmt 2017 ANNUAL REPORT

I 17

12.82 Reduced Cost FORTESCUE METALS GROUP LIMITED METALS FORTESCUE US$ mt and efficiency. and efficiency. % • productivity and improve costs lower to drive Consistent on each of these key delivered In FY17, Fortescue its debt, reduce to and continued targets strategic returns and deliver business ore iron in its core invest shareholders. to 1

170.4 Consistent Production % Total Recordable Recordable Total Injury Rate Frequency 33

2.9 Improved Safety from the Company’s assets the Company’s from Key performanceKey indicators Fortescue’s FY17 results demonstrate the continued focus on fundamental business focus the continued demonstrate FY17 results Fortescue’s performance all operations. across consistent and delivered drivers and deliver innovate to continue teams Fortescue’s within the Company’s on key areas progress excellent the safest, as it implements its vision of being control including: producer, ore iron most profitable cost, lowest • performance in safety improvement Significant • maximum value Sustainable production delivering Key performance indicators

Safety The health and safety of Fortescue’s people is at the heart of the Company’s values and its commitment to becoming a global leader in safety.

Fortescue’s Total Recordable Injury Frequency Rate (TRIFR), Total Recordable Injury Frequency rate used as a measure of its safety performance, has been progressively reducing year-on-year, including a 33 per cent 9.2 reduction in FY17 to 2.9. 7.6 6.0 The Company is focussed on delivering progressive improvement 5.1 4.3 in its safety performance and promoting the behaviour to always 2.9 look out for your mates and yourselves to achieve its vision of zero injury and harm across the entire business.

FY12 FY13 FY14 FY15 FY16 FY17

Production In FY17, Fortescue achieved production records across mining, shipping and processing while continuing to lower costs.

This demonstrates the consistent delivery of outstanding operational performance across all aspects of the business. Production and shipments on a wet metric tonnes basis are outlined below.

12 months to 30 June 2017 (million tonnes) 2017 2016 Movement (%)

Ore mined 197.8 181.1 +9 Overburden removed 204.9 195.9 +5 Ore processed 172.2 167.6 +3 Shipments – Fortescue mined ore 170.4 166.8 +2 Shipments – Fortescue equity ore 170.4 167.4 +2 Total ore shipped including third party product 170.4 169.4 +1

Mining, million tonnes (wmt) Processing, million tonnes (wmt) Shipments, million tonnes (wmt)

197.8 181.1 172.2 170.4 164.1 167.6 165.4 169.4 153.6 140.4 126.0 124.2 94.6 76.1 80.9

FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY15 FY16 FY17

Mining volumes and processing throughput continue to support shipments of 170mt per year. Iron ore stockpiles at the mines and product stocks at the ore processing facilities and at Port are maintained at optimum levels to support production targets and continue to be managed closely to ensure product quality and specifications.

Strip ratios across the business were maintained at 1.0 in FY17. Fortescue continues to meet customer demands through its wet processing capability, achieving sustained improvements in metallurgical upgrades through the OPFs, as well as plant reliability.

The efficiency of Fortescue’s rail and port infrastructure supported the Company’s mining and processing operations through FY17. Fortescue’s focus remains on maximising the value of its ore bodies and infrastructure assets through beneficiation, operating efficiencies and productivity improvements.

20 FORTESCUE METALS GROUP LIMITED I OPERATING AND FINANCIAL REVIEW Operating Ore Reserves Corporate Social

Overview Governance Financial Report Remuneration Report Corporate Directory 21 and Financial Review and Mineral Resources Responsibility

12.16 2017 ANNUAL REPORT

I 13.06 12.54 FY17 US$12.82/wmt FORTESCUE METALS GROUP LIMITED METALS FORTESCUE 13.55 International, with deliveryInternational, of the vessel expected in mid-2018. final the fleet When fully operational, approximately will provide total of Fortescue’s 12 per cent shipping requirements. 14.31 products and services purchased 14.79 • programs insourcing Contractor • maximise the value of to initiatives Procurement • Mining and labour productivity equipment • technology. of autonomous Use on innovation, focus to continues Company the As year FY18 productivity the full and efficiencies, based on at US$11-12/wmt, is estimated C1 cost of 0.75 rate dollar exchange an assumed Australian (WTI). of US$53 per barrel and oil price 15.80 FY16 US$15.43/wmt

C1 cost reduction journey, US$/wmt reduction journey, C1 cost 16.90 efficiencies at Port and lowering costs. costs. Port lowering and efficiencies at maximise the tonnage to Designed loading rates, per ship and improve the ships will also enable the safe manoeuvring within the port and the A further carriers are channel. ore four being built at Guangzhou Shipyard 22.16 25.90 28.48 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 FY15 US$27.15/wmt SHIPPING 32.08 Carriers Ore Fortescue Q1FY15 Fortescue celebrated the delivery of its first four ore carriers during FY17. the deliveryfour ore celebrated of its first Fortescue SophiaFMG and Sydney Nicola, Grace, Yangzijiang constructed at Jiangsu’s were relationships reflecting close Shipyard, market. China, its largest in a natural extension carriers are ore The supply chain and of the Company’s role in increasing a significant will play enhanced plant reliability and shutdown optimisations and shutdown plant reliability enhanced C1 costs averaged US$12.82/wmt in FY17, a 17 per cent a 17 per cent US$12.82/wmt in FY17, averaged C1 costs an includes result This the prior year. over improvement June quarter. the of US$12.16/wmt for cost C1 average below. reduction journey is illustrated C1 cost Fortescue’s in recent Fortescue by reductions delivered cost Progressive in improvements long term sustainable, represent years of 20 years. supporting of mine in excess operating costs, life a 17 per cent to contributed which have areas Key focus include: the year during in C1 costs improvement • and yields, upgrades with improved OPF performance, • and mining methodology design Mine planning, • operational collaboration Cross-site Key performanceKey indicators Costs costs demonstrated on productivity C1 and efficiency focus lowered has again Fortescue’s and infrastructure. OPFs mines, across excellence operational by Financial results and position

Fortescue’s financial performance improved in FY17 with strong operational results increasing margins and generating strong free cash flows.

These financial outcomes demonstrate consistency of operations, productivity and an unwavering focus on efficiency with the emphasis on maximising the benefits of technology and innovation. Free cash flows generatedby operations has been consistently applied to debt reductions, strengthening Fortescue’s balance sheet and maximising shareholder returns.

2017 2016 Key metrics US$m US$m

Revenue 8,447 7,083 Underlying EBITDA1 4,744 3,195 Net profit after tax 2,093 985 Earnings per share US cents 67.3 31.6

Cash from operating activities 4,256 2,446 Capital expenditure – Fortescue 716 304 Free cash flows 3,540 2,142

Cash and cash equivalents 1,838 1,583 Debt 4,471 6,771 Net debt 2,633 5,188 C1 costs US$/wmt 13 15

Key ratios %% Gearing 31 45 Net gearing 21 38 Underlying EBITDA margin 56 45 Return on equity 23 12

1 Refer to page 23 for the definition and reconciliation of Underlying EBITDA to the financial metrics reported in the financialtatements s under Australian Accounting Standards.

22 FORTESCUE METALS GROUP LIMITED I OPERATING AND FINANCIAL REVIEW Operating Ore Reserves Corporate Social

Overview Governance Financial Report Remuneration Report Corporate Directory 23 and Financial Review and Mineral Resources Responsibility

2016 US$m 4,744 2017 ANNUAL REPORT

I 20 2017 4,744 3,195 2,9672,093 1,354 985 US$m 15 FORTESCUE METALS GROUP LIMITED METALS FORTESCUE 1 Note Price Royalty Fx Other FY17 1,262 99 alian Accounting Standards is presented below. below. is presented Standards alian Accounting ement in operating margins and reduced financing expenses. expenses. financing and reduced margins ement in operating

131 costs Underlying EBITDA, US$ million Underlying EBITDA, development and other expenses. In FY17, Fortescue’s operations generated operations generated In and other expenses. FY17, Fortescue’s development 445 77 FY16 Volume C1 costs Shipping 3,195 Notes to the accompanying financial statements the accompanying to Notes Net profit before tax before Net profit Income tax expense afterNet profit tax 1 14 (874) (369) Underlying EBITDA incomeFinance expensesFinance and amortisationDepreciation and otherExploration, development 6 5,6 7 7 (1,243) (51) (1,244) 19 (502) (136) (675) 214 Operating sales revenue and amortisation depreciation of sales excluding Cost gain (loss) exchange Net foreign expensesAdministration Other income 5 (3,661) (3,841) 4,6 3 6 8,447 13 7,083 4 (56) (2) (52) 1 7 In FY17, Fortescue delivered net profit after tax of US$2,093 million and earnings per share of 67.3 cents (FY16: US$985 million cents (FY16: US$985 of 67.3 after per share million and earnings tax of US$2,093 net profit delivered In FY17, Fortescue Underlying EBITDA tax, interest, financial performance before and is defined as earnings of Fortescue’s a key measure is Underlying EBITDA, amortisation, and depreciation exploration, the financial to Underlying EBITDA of reconciliation The US$4,744 million (FY16: US$3,195 million). of Underlying EBITDA Austr metrics reported under statements in the financial delivery and the prices cost of C1 operating ore iron reflects improved in Underlying EBITDA improvement 48 per cent The below. as illustrated respectively, the result to US$1,262 million and US$445 million reductions contributing Financial results and position and results Financial and 31.6 cents). This result reflects a significant improv reflects a significant result This and 31.6 cents). Financial performance Financial Financial results and position

Revenue

2017 2016 Note1 US$m US$m

Sale of iron ore 3 8,335 6,923 Other revenue 3 112 136 Sale of joint venture ore 3 - 24 Operating sales revenue 8,447 7,083

Shipments – Fortescue mined ore mt 170.4 166.8 Shipments – Fortescue’s share of joint venture ore mt - 0.6 62% Fe CFR Platts index US$/dmt 70 51 Revenue realised US$/dmt 53 45

1 Notes to the accompanying financial statements.

In FY17, Fortescue realised US$53/dmt (FY16: US$45/dmt), based on the 62 per cent CFR Platts index of US$70/dmt (FY16: US$51/dmt).

Revenue and realisation

US$m US$/dmt 11,753 12,000 160

8,574 9,000 8,120 8,447 120 6,716 7,083

6,000 80

3,000 40

0 FY12 FY13 FY14 FY15 FY16 FY17

Revenue CFR 62% price realisation

In FY17, Fortescue delivered net profit after tax of US$2,093 million and earnings per share of 67.3 cents (FY16: US$985 million and 31.6 cents). This result reflects a significant improvement in operating margins and reduced financing expenses.

24 FORTESCUE METALS GROUP LIMITED I OPERATING AND FINANCIAL REVIEW Operating Ore Reserves Corporate Social

Overview Governance Financial Report Remuneration Report Corporate Directory 25 and Financial Review and Mineral Resources Responsibility

ts 2016 US$m 2017 ANNUAL REPORT

I five per cent applicable per five 9 22 13 15 2017 2,184 2,573 US$m 8 23 1 FORTESCUE METALS GROUP LIMITED METALS FORTESCUE 5 545 446 55 192 183 201 204 Note 11 38 Shipping, royalty and administration and royalty Shipping, costs, shipping, state government royalties and administration and administration royalties government state shipping, costs, 18 52

Total delivered cost, US$/wmt cost, delivered Total C1 18 62 44 34 27 15 13 48 21 69 FY12 FY13 FY14 FY15 FY16 FY17 2 to beneficiated fines. fines. beneficiated to Fortescue pays a 7.5 per cent state government royalty for the majority of its iron ore products, with a concession rate of rate with a concession products, ore the majority of its iron for royalty government state a 7.5 per cent pays Fortescue Notes to the accompanying financial statements. the accompanying to Notes Administration expensesAdministration and administration, US$/wmt royalty Shipping, 6 9 56 8 52 2 performance discussed on page 21. the FY17 operating costs Key factors are to contributing Total delivered cost, US$/wmt cost, delivered Total 1 22 23 Port costs costs Port Operating leases US$ million C1 costs, mt mined ore, – Fortescue Shipments C1, US$/wmt Shipping costs royalty Government 170.4 5 166.8 29 5 76 929 781 Mining and processing costsMining and processing Rail costs 5 1,780 2,092 The reconciliation of C1 costs and total delivered costs to customers to the financial metrics reported the financial metrics to in the financial statemen customers to costs delivered and total of C1 costs reconciliation The charges, was US$22/wmt (FY16: US$23/wmt). (FY16: US$23/wmt). was US$22/wmt charges, below. is presented Standards Accounting under Australian Total cost of product delivered to customers, inclusive of C1 inclusive customers, to of product delivered cost Total Financial results and position and results Financial Production costs Production Financial results and position

Non-operating costs Key non-operating costs forming part of the financial result include:

• Net loss on early redemption of US$59 million (FY16: net gain of US$150 million)

• Interest expense of US$430 million reduced by US$191 million compared to the prior year of US$621m, following debt repayments of US$2.7 billion in FY17 (FY16: US$2.7 billion)

• Depreciation and amortisation expenses of US$1,243 million (FY16: US$1,244 million)

• Income tax expense for the year of US$874 million at an effective income tax rate of 29 per cent (FY16: US$369 million at a rate of 27 per cent).

Balance sheet strength Generation of free cash flow through consistent operating performance combined with improved market conditions and sustainable cost reductions across operations enabled Fortescue to repay US$2.7 billion of debt and refinance an additional US$1.5 billion during the year. The Company’s net gearing ratio has reduced to 21 per cent while extending its earliest debt maturity to 2022.

Key metrics At 30 June 2017, Fortescue’s net debt position was US$2,633 million (FY16: US$5,188 million), inclusive of finance leases and cash on hand.

2017 2016 Note1 US$m US$m

Borrowings 9(a) 3,653 6,266 Finance lease liabilities 9(a) 818 505 Cash and cash equivalents 9(b) (1,838) (1,583) Net debt 2,633 5,188 Equity 9,734 8,406 Gearing 31%* 45% Net gearing 21%* 38%

1 Notes to the accompanying financial statements. * This is calculated on debt plus equity.

Cash and debt, US$ billion Gearing and net gearing

80%

60% 12.7 12.7 10.5 9.6 9.6 9.6 9.6 40% 8.5 8.5 7. 2 7. 2 6.8 6.2 6.8 5.2 20% 4.5 4.5 2.3 2.2 2.4 2.4 1.6 1.8 2.6 FY12 FY13 FY14 FY15 FY16 FY17 FY12 FY13 FY14 FY15 FY16 FY17

Borrowings and finance Cash on hand Borrowings and finance lease liabilities Net gearing (RHS) lease liabilities Net debt Gearing (RHS)

26 FORTESCUE METALS GROUP LIMITED I OPERATING AND FINANCIAL REVIEW Operating Ore Reserves Corporate Social

Overview Governance Financial Report Remuneration Report Corporate Directory 27 and Financial Review and Mineral Resources Responsibility

g riers’ riers’ 2016 US$m 2017 ANNUAL REPORT

I 2017 3,540 2,142 US$m 750 750 FORTESCUE METALS GROUP LIMITED METALS FORTESCUE 2,160 Senior Unsecured Notes Senior Unsecured CY2021 CY2022 CY2023 CY2024 Debt maturity profile Debt maturity Senior Notes Secured

CY2017 CY2018 CY2019 CY2020 0 Cash and cash equivalents at 30 June 2017 were US$1,838 million compared to US$1,583 million at 30 June 2016, with the key to US$1,838 million compared and cash equivalents at 30 June 2017 were Cash the nextyear outlined on the financial page. for cash movements Cash flows from operating activities operating from flows Cash – Fortescue expenditure Capital cash flow Free 4,256 (716) 2,446 (304) Cash flow generation and capital discipline generation flow Cash focus on together with a cash margins positive reflects performanceyear improved cash flow during the free strong Fortescue’s by generated proceeds net cash representing flow, Free cash working capital efficiencies and disciplined capital management. US$3,540 million. to 65 per cent by has improved operations after capital allocations, Ore carrier facility Ore finance to Ltd Co., Leasing Bank Financing with the China Development an agreement completed Fortescue During the year, car lease facilitycent of the ore finance of US$473 million will fund 85 per The carriers. eight ore the construction for costs costs for a minimum of 12 years on highly flexible terms, including early repayment and extension options. At 30 June 2017, and extension options. repayment including early terms, on highly flexible a minimum of 12 years for costs remainin The year. carriers during the deliveryore four US$234 million of the facility of the first has been utilised following on delivery of each ship. funds under the facility on progressively will be drawn relationships the Company’s building and broadening strategy, funding transactionThis is an important in Fortescue’s milestone The Company’s debt maturity profile at 30 June 2017 is set out below. Fortescue debt portfolio maintains a flexible with no June 2017 is set out below. at 30 debt maturity profile Company’s The all instruments. across covenants maintenance financial Financial results and position and results Financial with China, and represents the largest direct funding arrangement provided by a major Chinese financier for a non-Chinese a major Chinese financier by direct funding arrangement provided the largest with China, and represents in Australia. company Debt profile 3,000 2,000 1,000 US$m Financial results and position

Cash generated by operations Key factors contributing to the 74 per cent improvement in operating cash inflows to US$4,256 million (FY16: US$2,446 million):

• 19 per cent increase in revenue as a result of improved iron ore price • 17 per cent reduction in C1 costs • Net increase in customer prepayments of US$223 million (FY16: net decrease of US$312 million) with US$500 million received offset by US$275 million amortisation through delivery of iron ore during the year • Lower interest payments of US$412 million (FY16: US$599 million) as debt repayments continued in FY17 • Income tax payments of US$375 million were made during the year including US$267 million attributable to FY16. The final FY17 payment of US$685 million is scheduled for December 2017.

Capital expenditure Fortescue’s capital expenditure for the year increased to US$716 million (FY16: US$304 million):

• Includes sustaining capital of US$354 million, US$260 million ore carrier construction, US$63 million development capital and US$39 million on exploration • Maintenance capital is closely managed to ensure sustainability of operations and delivery of maximum value from the Company’s world class assets, with sustaining capital estimated at US$3/wmt in FY18. • Joint venture capital expenditure of US$13 million (FY16: US$56 million) relates to the Iron Bridge project and has been predominantly funded by Formosa Plastics Group.

Commitment to debt reduction Fortescue’s debt reduction strategy continued in FY17 as the Company applied free cash flow to debt reduction. Fortescue’s net financing cash outflows increased to US$3,282 million (FY16: US$2,863 million):

• Debt repayments of US$2,687 million (FY16: US$2,695 million) • Refinancing of US$1,500 million and receipt of US$234 million from the ore carrier facility • Dividend payments of US$755 million (FY16: US$114 million).

Dividends and shareholder return Earnings have improved to 67.3 cents per share with return on equity of 23 per cent delivered during the year (FY16: 31.6 cents per share and 12 per cent respectively).

2017 2016 US$m US$m

Net profit after tax US$m 2,093 985 Earnings per share US cents 67.3 31.6 Return on equity 23% 12% Interim dividend AUD cents per share 20 3 Final dividend AUD cents per share 25 12 Total dividend AUD cents per share 45 15 Dividend payout ratio 52% 36%

Total dividend of 45 Australian cents per share represents a 52 per cent dividend payout ratio.

28 FORTESCUE METALS GROUP LIMITED I OPERATING AND FINANCIAL REVIEW ORE RESERVES AND MINERAL RESOURCES

FY17 Update

FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 29 Ore reserves and mineral resources report

Ore Reserves and Mineral Resources Ore Reserves Operating Properties – Hematite

Reporting is grouped by operating and development The 2017 combined Chichester and Solomon Hematite Ore properties and includes both Hematite and Reserve is a total of 2,191 million dry tonnes (mt) at an average Magnetite deposits. iron (Fe) grade of 57.2 per cent.

Hematite Ore Reserves total 2.19 billion tonnes (bt) at an Ore Reserves are quoted on a dry product basis while average iron (Fe) grade of 57.2 per cent. Combined Hematite Mineral Resources are quoted on a dry in-situ basis. Mineral Resources total 13bt at an average Fe of 56.8 per cent. (Company production and sales reporting is based on wet tonnes. The typical free moisture content of shipped products Magnetite Ore Reserves total 0.7bt at an average mass is nine per cent). recovery of 27.2 per cent for a 67 per cent Fe grade product. Magnetite Mineral Resources total 7.9bt at an average mass The Ore Reserve is quoted as at 30 June 2017 and is inclusive recovery of 23.3 per cent. of ore and product stockpiles at mines. Product stockpiles at port have been excluded from contributing to Ore Reserves. Operating property Ore Reserves and Mineral Resources have The proportion of higher confidence Proved Ore Reserve all been reported to the Joint Ore Reserves Committee (JORC) has remained essentially unchanged (reducing from 755mt 2012 standard. Accordingly, the information in these sections to 746mt) as a result of ongoing in-fill drilling at both the should be read in conjunction with the respective explanatory Solomon and the Chichester deposits. Mineral Resource and Ore Reserve information (Fortescue ASX release dated 18 August 2017). Development property The Chichester Hub (Cloudbreak and Christmas Creek Mineral Resources are a combination of JORC 2012 and deposits) contains 1,517mt at an average Fe grade of JORC 2004 estimates. Those development property Mineral 57.2 per cent, an increase of 73mt due to change in pit Resources reported to JORC 2012 standard are identified in geometry at Cloudbreak, inclusion of the Kutayi eastern the Fortescue ASX releases on 18 August 2017, 8 January extension in the Christmas Creek Life of Mine plan and 2015 and 20 May 2014 that includes the supporting technical on-going grade control drilling. Proved Ore Reserve constitutes data. The remaining JORC 2004 Mineral Resource estimates 42 per cent of Chichester Ore Reserve. While the Cloudbreak will be progressively updated to the JORC 2012 standard as and Christmas Creek deposits are quoted separately for development priorities dictate. historical reasons, they effectively represent a single deposit with ore generally directed to the most proximal of the three Magnetite Mineral Resources have been updated and available ore processing facilities (OPFs). reported to the JORC 2012 standards. The Mineral Resources quoted in this report should be read in conjunction with the The Ore Reserve estimate for the Solomon Hub is 674mt at supporting technical data contained in the corresponding an average Fe grade of 57.3 per cent, a decrease of 55mt due ASX release dated 18 August 2017. to production but with an increase in ore quality. A number of higher grade additions have been made to Solomon Ore The Ore Reserve and Mineral Resource estimation processes Reserves over the last 12 months, including brownfields followed internally are well established and are subject to extensions of the Firetail and Kings deposits. Solomon Ore systematic internal peer review, including calibration against Reserve consists of 17 per cent of the tonnage operational outcomes. Independent technical reviews and in the Proved Ore Reserve category. audits are undertaken on an as-required basis as an outcome of risk assessment. An independent audit of the Valley of the The 2017 Hematite Ore Reserve estimates were subject to Kings Resource Model was conducted in December 2016. comprehensive review and update addressing:

In addition to routine internal audit, auditing of the estimation • Revisions to the Cloudbreak pit geometry (increase) of Mineral Resources and Ore Reserves is addressed as a • Addition of the Kutayi deposit to the Christmas Creek sub-set of the annual internal audit plan approved by the resource base (increase) Board Audit and Risk Management Committee (ARMC). • Addition of the Pinnacles, Radio Tower Hill and Frederick Specific audit of the Ore Reserve process was performed in deposits to the Solomon resource base (increase) 2011, 2013, 2015, 2016 and 2017. These audits were managed by Fortescue’s internal audit service provider with external • Revisions of ore loss and dilution factors based on technical subject experts. The 2015, 2016 and 2017 Ore 12 months of operational history at all mines (minor) Reserves audits were carried out by independent external • Revisions to the processing response through all Ore technical consultants. Processing Facilities (OPFs) based on updated test work and operational history (minor) The ARMC also monitors the Ore Reserve and Mineral Resource status and approves the final outcome. The annual Ore Reserves • Ore depletion as a result of sales (decrease) and Mineral Resource update is a prescribed activity within the • Re-optimisation of mine geometries to maximise the benefit annual Corporate Planning Calendar that includes a schedule of cost reductions across all Fortescue operations and new of regular Executive engagement meetings to approve additions to the resource base assumptions and guide the overall process. • A revised life of mine (LOM) plan that addresses the Tonnage and quality information contained in the following listed items and incorporates the latest information on tables have been rounded and as a result the figures may not long term product strategy and mining and processing add up to the totals quoted. reconciliation trends.

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LOI % LOI Loss On Loss Ignition lives. model d in 2016, 2017 ANNUAL REPORT P %

I Phos mas Creek Ore Ore mas Creek % Al2O3 Al2O3 Alumina Alumina % SiO2 Silica FORTESCUE METALS GROUP LIMITED METALS FORTESCUE % Fe Iron Iron (mt) Tonnes Tonnes Product Product

LOI % LOI Loss On Loss Ignition P % Phos % Al2O3 Alumina Alumina June 2017 June 2016 % SiO2 Silica % Fe Iron Iron (mt) Tonnes Tonnes Product Product Reserves will be directed to the Cloudbreak OPF to optimise upgrade performance and balance Cloudbreak and Christmas Creek OPF and Christmas Creek performance Cloudbreak optimise upgrade and balance OPF to Reserves the Cloudbreak to will be directed Firetail Mineral Resource model revised in 2014, Cloudbreak Mineral Resource model completed in 2016 and Kings Mineral model completed Mineral Resource in 2014, Cloudbreak Resource model revised Mineral Resource Firetail production. against historical reconciliation by validated mining models are in 2017. Diluted released Christmas Creek • Ore Reserve in-situ Fe cut-off grades are an outcome of scheduling and vary time. an outcome cut-offtype and deposit through by ore are grades Reserve • Ore in-situ Fe Cloudbreak Notes in reference to table Notes in reference model complete Mineral report Reserves mining models used to based on Christmas Creek Resource diluted the 2017 Ore are The • 20.8mt on dry stockpiles product basis. approximately of ore at the mines totalling Reserves inclusive Ore are • Proved Selected Deposits. Bedded Iron Christ and Kutayi Reserve of the Cloudbreak, Christmas Creek Ore is inclusive Chichester The • Total Reserves Ore Hematite Total Proved 674 Probable 57.3 746Total 1,444 6.28 57.2 57.2 2.56 2,191 5.69 6.07 0.073 57.2 2.75 2.80 5.94 8.76 0.052 0.059 2.78 728 8.37 8.05 0.057 56.9 8.16 6.68 1,418 755 57.1 2,173 2.66 57.3 6.12 57.2 5.68 0.073 5.97 2.87 8.67 2.74 2.82 0.059 0.055 0.058 7.90 8.29 8.03 Total Sub-total Solomon Hub Proved 548 Probable 56.8 116 6.40 558 56.6 2.57 57.4 6.48 6.23 0.065 2.40 9.29 2.59 0.078 0.072 609 9.64 8.58 56.5 6.85 138 590 2.69 56.3 57.1 6.67 0.065 6.68 9.12 2.53 2.69 0.084 0.070 9.76 8.42 Proved Probable 13Total 112 Kings and Queens 59.0 59.3 Proved 125 5.57 5.75 Probable 59.2 2.40 103 2.53 5.73 446 0.114 56.3 0.107 2.51 56.9 6.60 7.18 6.38 6.36 0.107 2.40 6.46 2.61 19 100 0.073 0.064 119 59.2 58.4 9.95 9.13 5.83 5.79 59.1 5.82 120 2.51 2.70 489 2.54 56.0 0.111 0.127 56.6 6.81 0.113 6.85 6.23 7.29 6.40 2.51 2.73 0.077 0.062 10.15 8.87 Total Sub-total Hub Chichester Proved 924 Probable 57.0 631Total 5.93 886 57.3 Firetail 2.95 57.1 1,517 5.54 5.96 0.046 57.2 2.81 7.66 5.79 2.94 0.047 2.88 0.051 904 8.14 0.049 7.71 57.2 7.89 5.66 616 828 1,444 2.95 57.5 57.1 57.3 5.45 0.047 5.72 5.61 7.38 2.79 2.99 2.91 0.048 0.050 0.052 7.96 7.71 7.53 Total Proved 593 Probable 57.4 326 5.58 597 57.1 2.78 57.0 5.86 5.96 0.055 2.81 8.25 3.03 0.043 0.047 541 7.81 7.57 57.3 5.52 325 579 2.83 57.4 57.1 5.73 0.056 5.62 8.25 2.77 3.05 0.043 0.049 7.47 7.34 Proved Probable 304 289 57.5 57.2 5.21 5.97 2.81 2.75 0.052 0.058 8.49 8.00 291 249 57.6 57.1 5.15 5.95 2.82 2.84 0.054 0.059 8.50 7.97 Hematite Ore Reserves – as at 30 June 2017 30 Reserves – as at Ore Hematite Ore reserves and mineral resources report reservesresources and mineral Ore Ore reserves and mineral resources report

Ore Reserves – Magnetite

The 2017 Ore Reserves for Magnetite are from the Iron Bridge All Magnetite Ore Reserves are classified as Probable Ore project. Ore Reserves for the project total 705mt at an average Reserves. These have been estimated from Indicated plus mass recovery of 27.2 per cent for a 67 per cent Fe grade product. Measured Mineral Resources from within the North Star mining study pit. Additional Indicated Mineral Resources The Magnetite Ore Reserve is quoted as at 30 June 2017. from outside the study pit (including the Eastern Limb, Ore Reserves are quoted on a dry in-situ tonnes basis prior Glacier Valley and West Star deposits) have not been included to processing. in these Ore Reserves.

No Company sales or production have occurred for Magnetite The Magnetite Ore Reserves have been estimated by as at 30 June 2017. Price forecasting has been based on a independent consultants (Golder Associates) using detailed dry tonnage basis. When shipping occurs production will be information on mining parameters, geotechnical studies, quoted in wet tonnes. The typical free moisture content of metallurgical processing, and financial analysis taken from shipped products is nine per cent. the Iron Bridge feasibility study.

Magnetite Ore Reserves – as at 30 June 2017

June 2017 June 2016 DTR Product Product Product DTR Product Product Product In-Situ mass iron Silica Alumina In-Situ mass iron Silica Alumina Tonnes recovery Fe SiO2 Al2O3 Tonnes recovery Fe SiO2 Al2O3 (mt) % % % % (mt) % % % % North Star (60.72% Fortescue) - Eastern Limb currently not assessed Proved ------Probable 705 27.2 67.2 5.52 0.25 705 27.2 67.2 5.52 0.25 Total 705 27.2 67.2 5.52 0.25 705 27.2 67.2 5.52 0.25 Glacier Valley (60.72% Fortescue) Proved------Probable ------Total ------West Star (60.72% Fortescue) Proved------Probable ------Total ------Total Magnetite Ore Reserves Proved ------Probable 705 27.2 67.2 5.52 0.25 705 27.2 67.2 5.52 0.25 Total 705 27.2 67.2 5.52 0.25 705 27.2 67.2 5.52 0.25

Notes in reference to table • Magnetite Ore Reserves are a result of a mining study only upon the North Star deposit. Utilising 705mt of Measured plus Indicated Mineral Resources reported within a defined pit design. • All reporting is based on Mass Recovery expressed as a nine per cent Davis Tube Recovery (DTR) cut-off. • All Ore Reserves are reported on a dry-tonnage basis. Mineral Resources Operating Properties – Hematite

Mineral Resources for the operating properties including the Mineral Resource mineralisation from 70 per cent to Chichester and Solomon hubs are stated on a dry in-situ basis. 73 per cent as a result of infill drilling. The Mineral Resources are inclusive of that portion converted to Ore Reserves, including stockpiles. The Chichester Hub Mineral Resource totalled 3,170mt at an average Fe grade of 56.2 per cent, with 80 per cent of the tonnage As at 30 June 2017, the total Mineral Resource for the in the Measured and Indicated Mineral Resource categories. Chichester and Solomon hubs was 5,279mt at an average Fe grade of 56.0 per cent, a slight increase over that stated in the The total Solomon Hub Mineral Resource totalled 2,109mt at an prior year. This was accompanied by a slight increase in the average Fe grade of 55.5 per cent, with 62 per cent of the tonnage proportion of higher confidence Measured and Indicated in the Measured and Indicated Mineral Resource categories.

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LOI % LOI Loss On Loss Ignition s. Fortescue Fortescue s. 2017 ANNUAL REPORT

P I % Phos a cut-off of grade % Al2O3 Alumina Alumina % SiO2 Silica FORTESCUE METALS GROUP LIMITED METALS FORTESCUE % Fe Iron Iron (mt) In-Situ Tonnes Tonnes

LOI % LOI Loss On Loss Ignition P % Phos % Al2O3 Alumina Alumina June 2017 June 2016 % SiO2 Silica % Fe Iron Iron (mt) In-Situ Tonnes Tonnes 51.5 per cent Fe. 51.5 per cent is yet to remodel BCI Mineral Resources. BCI Mineral remodel Resources. to is yet Cloudbreak Total Christmas Creek 1,055 56.4 6.17 3.46 0.057 8.3 1,090 56.5 6.10 3.44 0.057 8.3 Measured Indicated 478 Inferred 438 56.7 5.60 56.1 138 6.70 3.45 56.3 3.46 6.46 0.056 0.059 8.6 3.53 8.1 0.052 514 7.8 438 56.8 5.48 56.1 138 6.70 3.40 56.3 6.47 3.45 0.055 0.059 8.6 3.53 8.1 0.052 7.8 Hematite Mineral Resources (Operating Properties) – as at 30 June 2017 Properties) as at – (Operating Resources Mineral Hematite Total Firetail 3,170 56.2 6.50 3.52 0.052 8.0 3,159 56.2 6.49 3.51 0.052 8.0 Total Sub-total Hub Chichester 2,115 Measured 56.2 1,000 Indicated 6.67 56.8 1,526 Inferred 5.87 3.55 56.1 643 6.73 0.050 3.28 55.8 3.61 0.051 7.9 6.95 0.053 8.3 2,069 3.69 7.9 56.1 1,048 0.054 6.69 56.9 1,492 7.8 3.55 5.82 56.0 0.050 619 6.75 3.24 7.9 55.7 3.64 0.051 6.98 0.052 8.3 3.68 7.9 0.054 7.9 Measured Indicated 522 1,088 Inferred 56.9 56.1 6.12 505 6.74 3.12 55.6 3.67 7.09 0.047 0.050 8.0 3.74 7.8 0.054 535 1,054 7.8 57.0 55.9 6.15 480 6.77 3.07 55.5 3.71 7.12 0.047 0.049 8.0 3.73 7.9 0.054 7.9 Total Kings and Queens 348 57.9 6.83 3.01 0.111 6.8 310 58.2 6.44 3.01 0.111 6.8 Measured Indicated 21 Inferred 193 58.1 58.3 5.43 134 6.62 57.2 2.93 2.78 7.34 0.128 0.113 3.36 7.9 6.6 0.107 32 7.0 146 57.7 59.0 132 5.91 6.12 57.3 3.18 6.92 2.63 0.128 0.111 3.38 7.7 6.2 0.108 7.1 Total Sub-total Solomon Hub 1,761 55.1 8.06 3.41 0.076 9.2 1,788 55.5 7.81 3.33 0.073 8.8 Measured Indicated 196 Inferred 893 55.0 7.81 55.2 671 8.00 2.92 54.9 3.37 8.22 0.086 0.073 9.9 3.60 9.1 0.079 222 9.0 729 55.2 7.31 55.6 836 7.98 2.90 55.5 7.78 3.29 0.091 0.064 10.1 3.48 8.6 0.076 8.7 Total 5,279 56.0 7.04 3.45 0.064 8.3 5,261 56.0 6.93 3.42 0.063 8.2 Total Resources Mineral Operational Hematite Total 2,109 Measured 55.5 1,218 Indicated 7.86 56.6 2,613 Inferred 6.18 3.34 55.9 1,448 7.15 0.082 3.21 55.5 3.47 7.58 0.058 8.8 0.064 8.6 3.62 2,097 8.2 55.9 0.070 1,307 7.60 8.3 56.4 2,368 3.28 6.05 56.0 1,587 0.079 7.09 3.17 55.7 8.5 7.40 3.47 0.059 0.060 8.6 3.55 8.0 0.070 8.2 Measured Indicated 217 1,087 Inferred 55.3 55.7 7.59 805 7.75 2.92 55.3 3.27 8.07 0.090 0.080 9.7 3.56 8.7 0.083 254 876 8.7 55.5 56.2 7.14 968 7.67 2.94 55.8 3.18 7.67 0.096 0.072 9.8 3.46 8.2 0.080 8.5 Notes in reference to table Notes in reference at quoted Fe and are Hub Solomon at a cut-offMineral Resources quoted cent are of 53.5 per Hub MineralChichester Resources • • The Chichester Hub Mineral Resources now include those at Kutayi which were previously reported under Development Propertie reported under Development previously which were include those at Kutayi now Hub Mineral Chichester Resources The • 22mt. includes mine stockpiles approximately estimate Mineral totalling Measured The Resource • Ore reserves and mineral resources report reservesresources and mineral Ore Ore reserves and mineral resources report

Mineral Resources Development Properties – Hematite

Fortescue has announced a 1.4 billion tonnes (bt) addition to The Kutayi deposit in the Greater Chichester has been the Western Hub Mineral Resource as a result of exploration transferred to the Chichester operating properties. drilling, including increases to the existing Eliwana and Flying Fish The consequent reduction in tonnes in the Greater Chichester deposits. This update to the development properties is reported Mineral Resources has been partly offset by increases in the to JORC 2012 standard as identified in the Fortescue ASX releases Investigator and White Knight Mineral Resources as a result of on 18 August 2017, 8 January 2015 and 20 May 2014 that additional drilling completed in these areas. includes the supporting technical data.

Hematite Mineral Resources (Development Properties) – as at 30 June 2017

June 2017 June 2016 In-Situ Iron Silica Alumina Phos Loss On In-Situ Iron Silica Alumina Phos Loss On Tonnes Fe SiO2 Al2O3 P Ignition Tonnes Fe SiO2 Al2O3 P Ignition (mt) % % % % LOI % (mt) % % % % LOI % Greater Chichester Measured ------Indicated ------82 57.9 6.30 2.99 0.053 6.8 Inferred 433 56.4 7.10 3.77 0.058 7.0 409 57.0 6.66 3.61 0.059 6.8 Total 433 56.4 7.10 3.77 0.058 7.0 491 57.1 6.60 3.51 0.058 6.8 Greater Solomon Measured ------Indicated 254 56.6 6.70 3.45 0.083 8.3 254 56.6 6.70 3.45 0.083 8.3 Inferred 2,404 56.8 6.93 3.71 0.081 7.2 2,404 56.8 6.93 3.71 0.081 7.2 Total 2,658 56.8 6.91 3.69 0.082 7.3 2,658 56.8 6.91 3.69 0.082 7.3 Western Hub Measured ------Indicated ------Inferred 2,125 57.9 5.53 2.93 0.094 7.9 740 59.1 5.21 2.88 0.091 6.5 Total 2,125 57.9 5.53 2.93 0.094 7.9 740 59.1 5.21 2.88 0.091 6.5 Nyidinghu Measured 23 59.6 3.56 2.21 0.139 8.0 23 59.6 3.56 2.21 0.139 8.0 Indicated 580 58.1 4.52 2.95 0.148 8.6 580 58.1 4.52 2.95 0.148 8.6 Inferred 1,860 57.2 5.00 3.36 0.147 8.8 1,860 57.2 5.00 3.36 0.147 8.8 Total 2,463 57.4 4.87 3.25 0.147 8.8 2,463 57.4 4.87 3.25 0.147 8.8 Total Development Mineral Resources Measured 23 59.6 3.56 2.21 0.139 8.0 23 59.6 3.56 2.21 0.139 8.0 Indicated 834 57.6 5.18 3.11 0.128 8.5 916 57.6 5.28 3.09 0.121 8.3 Inferred 6,823 57.2 5.98 3.38 0.102 7.9 5,416 57.3 6.01 3.47 0.104 7.6 Total 7,680 57.3 5.89 3.35 0.105 7.9 6,353 57.4 5.90 3.41 0.107 7.7

Notes in reference to table • The Greater Chichester Mineral Resource includes the Investigator, White Knight and Mount Lewin deposits. • The Greater Solomon Mineral Resource includes the Serenity, Sheila Valley, Mount MacLeod, Queens Extension, Cerberus, Stingray and Raven deposits. • The Western Hub Mineral Resource includes the Eliwana, Flying Fish, Cobra, Lora, Zorb, Farquhar, Elevation, Boolgeeda CID and Wyloo North deposits. • All Mineral Resources are quoted on an in-situ basis after applying an appropriate cut-off for each deposit. Details relating to the cut-offs were provided when each Mineral Resource was first announced.

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% Al2O3 In-situ Alumina Alumina 2017 ANNUAL REPORT

I % ported according ported according SiO2 Silica In-situ % Fe iron iron In-situ FORTESCUE METALS GROUP LIMITED METALS FORTESCUE % DTR mass recovery

(mt) 258 23.5 29.0 42.90 3.20 2,784 22.5 32.5 39.06 1.74 In-Situ Tonnes Tonnes

Limb and Glacier Valley, which can potentially be converted to converted be which can potentially Valley, Limb and Glacier several across improved have Reserve. Mineralan Ore Resources to Indicatedin an increase resulting deposits with infill drilling Limb Eastern in the North Mineraland Measured Resources Star, deposits. Valley and Glacier % 2.13 3.43 Al2O3 In-situ Alumina Alumina % SiO2 Silica In-situ % Fe iron iron In-situ June 2017 June 2016 % DTR mass recovery

(mt) In-Situ Tonnes Tonnes to JORC 2012 standards. standards. 2012 JORC to North Star + Eastern Limb (60.72% Fortescue) West Star (60.72% Fortescue) West Measured Indicated 77 Inferred 989 Total 28.6 3,231 27.8 Fortescue) (60.72% Valley Glacier 32.4 24.1 4,297 31.1 39.44 25.1 29.6 40.48 1.91 30.0 41.80 2.28 41.46 76 2.88 936 2.73 2,651 28.7 26.8 3,664 24.7 32.4 25.3 31.1 30.5 39.42 30.7 40.50 41.23 1.90 41.01 2.29 2.62 2.52 Notes in reference to table Notes in reference re are Star deposits, West and Valley Glacier Limb, Eastern including the North estimates, Mineral Star, Magnetite Resource • Measured Indicated 77 Inferred 1,466 Total 28.6 26.6 6,350 32.4 22.5 31.5 7,892 39.44 23.3 30.0 40.11 1.91 30.3 41.38 2.11 41.12 76 1,286 2.60 2.50 26.4 5,344 28.7 6,706 23.5 31.6 32.4 24.1 31.3 40.10 39.42 31.4 40.32 2.12 1.90 40.27 2.26 2.22 Measured Indicated - Inferred - Total 274 - - 23.5 274 - 23.5 28.3 - 28.3 43.43 - 43.43 3.43 - 258 - - 23.5 - 29.0 - 42.90 - 3.20 ------Measured Indicated - Inferred 477 Total 2,844 24.1 - 20.5 3,321 32.4 21.1 - 30.7 39.33 30.9 40.69 1.74 - 40.50 2.19 350 2,434 25.1 - 22.2 32.8 32.4 - 39.01 39.06 1.66 - 1.76 - - - Magnetite Mineral Resources – as at 30 June 2017 – as at Resources Magnetite Mineral Mineral Resource updates for the North Star, West Star and Star West North the for updates Mineral Star, Resource completed were Fortescue) deposits (60.72 per cent Valley Glacier the results including additional drilling, in 2017, incorporating all areas. across drilling campaign circulation reverse of an infill confidencetonnage of higher the drilling has confirmed This Eastern and Indicated at NorthMeasured Mineral Resources Star, Ore reserves and mineral resources report reservesresources and mineral Ore Properties – Magnetite Development Resources Mineral Total Magnetite Mineral Resources Magnetite Mineral Total • All reporting is based on Mass Recovery expressed as a nine per cent Davis Tube Recovery (DTR) cut-off. Recovery (DTR) Tube All reporting Davis as a nine per cent is based on Mass Recovery expressed • reported on a dry-tonnage are All Mineral Resources basis. • Ore reserves and mineral resources report

Competent Persons Statement

The detail in this report that relates to Hematite Mr Robinson is a Fellow of, and Mr Nitschke, Ms Retz, Mineral Resources is based on information compiled by Mr Slavik, Mr Wang, Mr Fowers, Mr Widenbar and Mr Turnbull Mr Stuart Robinson, Mr Nicholas Nitschke, Ms Erin Retz and are Members of the Australasian Institute of Mining and Mr David Frost-Barnes; full-time employees of Fortescue. Metallurgy. Mr Frost-Barnes is a Member of the Institute of Each provided technical input for Mineral Resource Materials, Minerals and Mining. estimations. The detail in this report that relates to Magnetite Mineral Resources is based on information Mr Robinson, Mr Nitschke, Ms Retz, Mr Frost-Barnes, Mr Slavik, complied by Mr Lynn Widenbar, an independent Mr Wang, Mr Fowers, Mr Widenbar and Mr Turnbull have consultant for Widenbar and Associates. Mr Widenbar sufficient experience relevant to the style of mineralisation and provided technical input for Mineral Resource estimations. type of deposit under consideration and to the activity which they are undertaking to qualify as a Competent Person as defined Estimated Ore Reserves for the Chichester and Solomon in the 2012 Edition of the ‘Australasian Code for Reporting of Hubs for fiscal year 2017 were compiled by Mr Martin Slavik, Exploration Results, Mineral Resources and Ore Reserves’. Mr Oliver Wang and Mr Chris Fowers; full-time employees of Fortescue. Estimated Magnetite Ore Reserves for the Mr Robinson, Mr Nitschke, Ms Retz, Mr Frost-Barnes, Mr Slavik, Iron Bridge project for fiscal year 2017 were compiled Mr Wang, Mr Fowers, Mr Widenbar and Mr Turnbull consent by Mr Glenn Turnbull, an independent consultant for to the inclusion in this report of the matters based on this Golder Associates. information in the form and context in which it appears.

on m

o C Hematite Ore Reserves total l

2.2bt h

o 2.2 billion tonnes at an average

i S Ore

c grade of 57.2% Fe

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36 FORTESCUE METALS GROUP LIMITED I ORE RESERVES AND MINERAL RESOURCES Operating Ore Reserves Corporate Social

Overview Governance Financial Report Remuneration Report Corporate Directory 37 and Financial Review and Mineral Resources Responsibility

2017 ANNUAL REPORT

I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE 45/2535 M 45/1226 45/293 L 45/294 L 45/317 L 45/318 L47/657 L47/659 Holder: Pilbara Water & Power Pty Ltd & Power Water Holder: Pilbara Granted Status: N/A (Note: 1) status: rights mineral FMG L 45/272 L 45/289L 45/360 L 45/291 L 45/36145/292 L L 45/364 L 45/325 45/389 L L45/319 L 45/331 L 45/320 Steel IB Pty Pty Magnetite Ltd Holder: FMG Ltd and Formosa Granted Status: rights 69% all mineral status: rights mineral FMG (Note: 1 and 2) E 45/4606 IB Pty Steel Magnetite Pty Ltd Holder: FMG Ltd and Formosa Granted Status: N/A (Note: 1 and 2) status: rights mineral FMG L 45/359 L 45/366 L 45/367 Steel IB Pty Magnetite Pty Ltd Holder: FMG Ltd and Formosa Application Status: N/A (Note: 1 and 2) status: rights mineral FMG L 45/397 North PtyHolder: FMG Ltd Pilbara Granted Status: (Note: 1) rights 100% all mineral status: rights mineral FMG E 45/3084 M 45/1244 P 45/3010 Holder: Chichester Metals PtyHolder: Chichester Ltd Application Status: rights 100% all mineral status: rights mineral FMG M45/1258 PtyHolder: Chichester Metals Ltd Application Status: N/A status: rights mineral FMG L47/653 Magnetite PtyHolder: FMG Ltd (Note: 1) rights all mineral 100% status: rights mineral FMG Granted Status: E 45/2510 E Pty Magnetite Holder: FMG Ltd N/A (Note: 1) status: rights mineral FMG Granted Status: L 45/257 L Magnetite PtyHolder: FMG Ltd N/A (Note: 1) status: rights mineral FMG Application Status: L45/152 L46/36 L46/100 L46/111 E45/2498 E45/2499 E45/2593 E45/2651 Western Australia Tenure Australia Western Holder: Chichester Metals Pty Ltd Granted Status: N/A status: rights mineral FMG G46/7 L46/112L46/46 L46/35L46/52 L46/66 L46/99L47/193 L46/47 L46/48 L46/37L47/656 L46/53 L46/57L47/710 L47/197 L46/49 L46/40 L47/198 L47/711 L47/658 L46/62 L47/654 L46/51 L47/778 L47/660 L46/64 L47/655 L47/693 Holder: Chichester Metals Pty Ltd Granted Status: rights ore 100% iron status: rights mineral FMG E 46/413 E45/2497 E45/2652 E46/566E46/519 E46/467E46/590 E46/595 E46/516E46/611 E46/612 E46/567 E46/518 E46/675 E47/1320 E46/600 E46/568 E46/623E47/2177 M45/1082 E46/601 E46/569 E47/1387 M45/1086 E46/664M45/1085 E46/610 M45/1083 E47/1388 M45/1091 M45/1084 E46/666 E47/1434 M45/1090 M45/1087 M45/1089 M45/1103 M45/1088M45/1102 M45/1092 M45/1094 M45/1124 M45/1093M45/1107 M45/1104 M45/1106 M45/1138 M45/1105M45/1128 M45/1125 M45/1127 M46/316 M45/1126M45/1142 M45/1141 M45/1139 M46/321 M45/1140M46/315 M46/292 M46/314 M46/326M46/320 M46/293 M46/317 M46/331M46/325 M46/319 M46/318 M46/322 M46/336M46/330 M46/324 M46/323 M46/327 M46/341M46/335 M46/329 M46/328 M46/332 M46/346M46/340 M46/334 M46/333 M46/337 M46/351M46/345 M46/339 M46/338 M46/342 M46/356M46/350 M46/344 M46/343 M46/347 M46/404M46/355 M46/349 M46/348 M46/352 M46/409M46/403 M46/354 M46/353 M46/357 M46/414M46/408 M46/402 M46/401 M46/405 M46/419M46/413 M46/407 M46/406 M46/410 M46/424M46/418 M46/412 M46/411 M46/415 M46/454M46/423 M46/417 M46/416 M46/420 M47/1461M46/453 M46/422 M46/449 M46/421 M46/450 M46/451 M46/452 Ore reserves and mineral resources tenements reserves resources and mineral Ore Metals PtyHolder: Chichester Ltd Granted Status: rights 100% all mineral status: rights mineral FMG Ore reserves and mineral resources tenements Western Australia Tenure continued

Holder: FMG Nullagine Pty Ltd Status: Granted Holder: FMG Nullagine Pty Ltd Status: Granted FMG mineral rights status: 100% iron ore rights FMG mineral rights status: N/A E45/2717 E46/522 E46/523 E46/651 E46/652 G46/9 L46/114 L46/118 L46/119 L46/74 E46/655 E46/663 E46/928 E46/969 M46/515 L46/80 L46/82 L46/83 L46/84 L46/85 M46/522 M46/523 L46/93 L46/95

Holder: FMG Pilbara Pty Ltd Status: Granted FMG mineral rights status: 100% all mineral rights E08/1393 E08/1440 E08/1878 E08/2003 E08/2072 E47/3094 E47/3126 E47/3150 E47/3153 E47/3161 E08/2137 E08/2200 E08/2398 E08/2594 E08/2652 E47/3162 E47/3163 E47/3194 E47/3205 E47/3207 E08/2653 E08/2662 E08/2721 E08/2778 E08/2792 E47/3211 E47/3218 E47/3220 E47/3222 E47/3225 E08/2827 E08/2932 E45/2870 E45/3191 E45/3414 E47/3226 E47/3227 E47/3245 E47/3252 E47/3264 E45/3473 E45/3438 E45/3545 E45/3641 E45/3659 E47/3270 E47/3280 E47/3291 E47/3292 E47/3296 E45/3697 E45/3698 E45/3760 E45/3816 E45/3705 E47/3311 E47/3313 E47/3315 E47/3318 E47/3321 E45/4148 E45/4227 E45/4265 E45/4356 E45/4450 E47/3334 E47/3335 E47/3347 E47/3350 E47/3379 E45/4451 E45/4466 E45/4498 E45/4525 E45/4526 E47/3380 E47/3381 E47/3397 E47/3402 E47/3403 E45/4529 E45/4530 E45/4531 E45/4532 E45/4528 E47/3404 E47/3405 E47/3406 E47/3438 E47/3444 E45/4549 E45/4578 E45/4664 E45/4725 E45/4728 E47/3448 E47/3451 E47/3454 E47/3455 E47/3464 E46/517 E46/621 E46/699 E46/701 E46/706 E47/3498 E47/3499 E47/3500 E47/3501 E47/3505 E46/711 E46/741 E46/743 E46/776 E46/799 E47/3506 E47/3512 E47/3513 E47/3517 E47/3561 E46/859 E46/861 E46/862 E46/965 E46/967 E47/3562 E47/3563 E52/1763 E52/1779 E52/1788 E46/980 E46/986 E46/989 E46/1000 E46/1009 E52/1789 E52/1790 E52/1937 E52/2034 E52/2035 E46/1034 E46/1045 E46/1055 E46/1071 E46/1074 E52/2114 E52/2311 E52/2521 E52/2522 E52/2555 E46/1076 E46/1077 E46/1079 E46/1080 E46/1085 E52/2594 E52/2620 E52/2637 E52/2745 E52/2748 E46/1120 E46/1128 E46/1142 E46/1146 E46/1152 E52/2928 E52/2933 E52/3060 E52/3097 E52/3107 E46/1155 E47/1011 E47/1016 E47/1136 E47/1154 E52/3134 E52/3135 E52/3160 E52/3184 E52/3204 E47/1155 E47/1194 E47/1195 E47/1196 E47/1299 E52/3208 E52/3209 E52/3210 E52/3211 E52/3213 E47/1300 E47/1301 E47/1302 E47/1306 E47/1319 E52/3233 E52/3247 E52/3261 E52/3294 E52/3343 E47/1342 E47/1349 E47/1351 E47/1355 E47/1357 E52/3369 E52/3370 E52/3371 E52/3372 E52/3373 E47/1370 E47/1373 E47/1383 E47/1384 E47/1390 E52/3396 E52/3441 E52/3471 M08/502 M45/1177 E47/1391 E47/1392 E47/1393 E47/1395 E47/1396 M47/1407 M47/1408 M47/1409 M47/1410 M47/1411 E47/1397 E47/1404 E47/1419 E47/1420 E47/1423 M47/1413 M47/1417 M47/1431 M47/1433 M47/1434 E47/1433 E47/1435 E47/1446 E47/1447 E47/1448 M47/1453 M47/1466 M47/1473 M47/1474 M47/1475 E47/1449 E47/1453 E47/1455 E47/1461 E47/1500 M47/1488 M47/1489 M47/1490 M47/1492 M47/1508 E47/1532 E47/1533 E47/1543 E47/1578 E47/1579 M47/1509 P08/531 P08/532 P45/2862 P45/2863 E47/1614 E47/1623 E47/1650 E47/1675 E47/1681 P45/2864 P45/2865 P45/2932 P47/1257 P47/1269 E47/1684 E47/1690 E47/1702 E47/1703 E47/1728 P47/1278 P47/1279 P47/1286 P47/1287 P47/1304 E47/1741 E47/1761 E47/1762 E47/1763 E47/1764 P47/1305 P47/1306 P47/1309 P47/1397 P47/1407 E47/1772 E47/1809 E47/1818 E47/1821 E47/1832 P47/1408 P47/1409 P47/1410 P47/1411 P47/1412 E47/1846 E47/1861 E47/1920 E47/1921 E47/1927 P47/1423 P47/1427 P47/1469 P47/1470 P47/1545 E47/1944 E47/1988 E47/2037 E47/2085 E47/2119 P47/1554 P47/1609 P47/1633 P47/1642 P47/1643 E47/2146 E47/2160 E47/2171 E47/2172 E47/2173 P47/1649 P47/1650 P47/1663 P47/1664 P47/1665 E47/2239 E47/2240 E47/2285 E47/2292 E47/2331 P47/1666 P47/1667 P47/1668 P47/1669 P47/1670 E47/2333 E47/2378 E47/2465 E47/2496 E47/2538 P47/1671 P47/1672 P47/1673 P47/1674 P47/1675 E47/2664 E47/2665 E47/2666 E47/2675 E47/2729 P47/1722 P47/1735 P47/1736 P47/1768 P47/1771 E47/2739 E47/2879 E47/2914 E47/2918 E47/2919 P47/1775 P47/1776 P47/1777 P47/1774 P52/1485 E47/2920 E47/2921 E47/2922 E47/2985 E47/2986 P52/1523 P52/1524 P52/1525 E47/3001 E47/3004 E47/3013 E47/3014 E47/3081

38 FORTESCUE METALS GROUP LIMITED I ORE RESERVES AND MINERAL RESOURCES Operating Ore Reserves Corporate Social

Overview Governance Financial Report Remuneration Report Corporate Directory 39 and Financial Review and Mineral Resources Responsibility

2017 ANNUAL REPORT

I tus: Application FORTESCUE METALS GROUP LIMITED METALS FORTESCUE AL 70/1 (L 1SA) G45/286 L45/199Sta Pty Infrastructure Ltd Pilbara The L46/96 Holder: N/A status: rights mineral FMG L47/758L47/795 L47/759L47/800 L47/796 L47/760 L47/801 L47/797 L47/761 L47/803 L47/798 L47/794 L47/804 L47/799 Holder: Pilbara Gas Pty Pipeline LtdHolder: Pilbara Application Status: N/A status: rights mineral FMG L45/332L45/348 L45/333 L47/695 L45/337 L45/338 Pty Ore Iron LtdHolder: Pilbara L45/340 (Note 5) rights 50% all mineral status: rights mineral FMG Granted Status: E47/1191 E47/1192E47/1380 E47/1224 M47/580 E47/1225 P47/1816 E47/1235 Pty Ore Iron LtdHolder: Pilbara N/A (Note 5) status: rights mineral FMG Application Status: L 47/205 PtyLtd Status: Infrastructure Pilbara The Holder: Granted N/A status: rights mineral FMG Holder: FMG Resources Pty Resources LtdHolder: FMG rights 100% all mineral status: rights mineral FMG Granted Status: E28/2660 E28/2661E45/4349 E28/2662 E45/4350E47/2774 E45/4021 E45/4576 E59/1360 E45/4150 E77/2262 E45/4577 E77/2157 E77/2292 E45/4737 E77/2158 E77/2159 Pty Resources LtdHolder: FMG 4) N/A (Note status: rights mineral FMG Granted Status: E29/929 E29/938 E29/946 Pty Resources LtdHolder: FMG E59/1275 rights 100% all mineral status: rights mineral FMG P29/2359 Application Status: E28/2663 E28/2664 Gas Pty Pipeline LtdHolder: Pilbara Granted Status: N/A status: rights mineral FMG L45/334L45/343 L45/335L45/349 L45/344 L45/336 L45/352 L45/345 L45/339 L45/353 L45/346 L45/342 L47/696 L45/347 L47/697 continued Western Australia Tenure Tenure Australia Western L47/714 L47/716 L47/790 L47/802 Holder: FMG Pilbara Pty Ltd Pilbara Holder: FMG N/A status: rights mineral FMG Application Status: E08/2849 E08/2930E45/4581 E45/4545 E45/4582E45/4864 E45/4579 E45/4718 E46/1046 E45/4580 E46/1101 E45/4720 E46/1047 E46/1117 E45/4954 E46/1127 E46/1072 E46/1121 E46/1135 E45/4781 E47/3098 E46/1122 E46/1136 E47/3171 E46/1081 E47/3278 E46/1145 E47/3262 E47/3279 E46/1125 E47/3435 E47/3263 E47/3372 E47/3482 E46/1158 E47/3527 E47/3424 E47/3483 E47/3548 E47/3277 E47/3588 E47/3484 E47/3572 E47/3598 E47/3432 E47/3685 E47/3581 E47/3628 E47/3686 E47/3511 E47/3739 E47/3649 E47/3688 E47/3740 E47/3587 M47/1457 E47/3689 E47/3741 M47/1458 E47/3658 M47/1478 M47/1459 E52/3482 M47/1481 M47/1476 E47/3690 M47/1511 M47/1493 M47/1456 M47/1513 M47/1497M47/1522 M47/1518 M47/1477 M47/1523 M47/1519M47/1530 M47/1524 M47/1510 M47/1531 M47/1525 M47/1526 M47/1520 P47/1772 R47/14 Holder: FMG Pilbara Pty Ltd Pilbara Holder: FMG rights 100% all mineral status: rights mineral FMG Application Status: Holder: FMG Pilbara Pty Ltd Pilbara Holder: FMG N/A status: rights mineral FMG G45/275 Granted Status: G45/285L47/232 L45/158L47/351 L47/293 L45/191L47/367 L47/360 L47/294 L45/240 L47/397 L47/381 L47/361 L47/296L47/752 L47/471 L47/382 L47/362 L47/301 L47/754 L47/472 L47/391 L47/363 L47/770 L47/700 L47/392 L47/774 L47/713 L47/777 E 47/1333 E 47/1334E 47/1399 E 47/1352 E 47/1436 E 47/1372 E 47/1523 E 47/1398 E 47/1524 Holder: FMG Pilbara Pty Ltd Pilbara Holder: FMG status: rights mineral FMG diamonds except rights 100% all mineral Granted Status: E 08/1915 E 08/2000E 47/1773 E 08/2065 E 47/2236 E 08/2067 E 52/2786 E 08/2114 Ore reserves and mineral resources tenements reserves resources and mineral Ore Pty Ltd Pilbara Holder: FMG status: rights mineral FMG 3) (Note non-iron 34.81% rights, ore 100% iron Granted Status: Ore reserves and mineral resources tenements Third Party Tenure

Holder: Ammon, Derek Holder: Ryan, David Status: Granted Status: Granted FMG mineral rights status: 40% all mineral rights (Note 6) FMG mineral rights status: 100% all mineral rights except tiger eye E47/1140 P 47/1275

Holder: Ammon, Derek Holder: Ryan, David Status: Application Status: Application FMG mineral rights status: 40% all mineral rights (Note 6) FMG mineral rights status: 100% all mineral rights M47/583 except tiger eye M47/1502

Holder: Archipelago Nominees Pty Ltd

Status: Granted Holder: Williamson, Richard FMG mineral rights status: 100% all mineral rights except Status: Granted rock products FMG mineral rights status: 100% all mineral rights M 45/1229 except tiger eye P 47/1695

Holder: Cullen Exploration Pty Ltd Status: Granted Holder: Wodgina Lithium Pty Ltd FMG mineral rights status: Beneficial right to earn 51% Status: Granted iron ore rights FMG mineral rights status: 100% iron ore rights E52/1667 E 45/4024 E 45/4025

South Australian Tenure

Holder: FMG Resources Pty Ltd Status: Granted Holder: FMG Resources Pty Ltd Status: Application FMG mineral rights status: 100% all mineral rights FMG mineral rights status: 100% all mineral rights EL5023 EL5024 EL5025 EL5026 EL5028 ELA 2017/00089 ELA 2017/00120 ELA 2017/00132 EL5030 EL5031 EL5237 EL5338 EL5451 ELA 2017/00134 ELA 2017/00137 ELA 2017/00140 EL5467 EL5748 EL5750 EL5782 EL5825 ELA 2017/00141 ELA 2017/00142 ELA 2017/00143 EL5854 EL5884 EL5912 EL5967 EL5968

20 GRANTED TENEMENTS Total area 6,177km2

40 FORTESCUE METALS GROUP LIMITED I ORE RESERVES AND MINERAL RESOURCES Operating Ore Reserves Corporate Social

Overview Governance Financial Report Remuneration Report Corporate Directory 41 and Financial Review and Mineral Resources Responsibility

rces Pty rces Ltd, Ltd, Lucknow Lucknow Ltd, 2017 ANNUAL REPORT

n the metallic I

Baowu Group. Baowu mited which is owned mited mineral rights. mineral rights. FORTESCUE METALS GROUP LIMITED METALS FORTESCUE EL6562 EL6268 Pty Ltd Waterhole Tom’s Holder: Granted Status: Earning 51% metallic status: rights mineral FMG (Note 7) rights mineral EL6456 Holder: Gum RidgeHolder: Gum Mining Pty Ltd Granted Status: Earning 51% metallic status: rights mineral FMG (Note 7) rights mineral EL6249 Holder: Imperial Gold 2 Pty Ltd Granted Status: 51% metallic Earning status: rights mineral FMG (Note 8) rights mineral EL7207 Gold Limited Holder: Lucknow Granted Status: Earning 51% metallic status: rights mineral FMG (Note 7) rights mineral EL6455 (partial) Holder: Sams Reef Mining Pty Ltd Granted Status: Earning 51% metallic status: rights mineral FMG (Note 8) rights mineral Pty Ltd are farming in to earn up to an 51 per cent interest i interest an 51 per cent earn up to farming in to Pty are Ltd earn up to an 51per cent interest in the metallic mineral rights. in the metallic mineral rights. interest an 51per cent earn up to thern Star Resources hold 63.24 per cent beneficial interest in non-iron in non-iron beneficial interest hold 63.24 per cent thern Star Resources Metals Limited and Consolidated Minerals Limited. Minerals Limited. Metals and Consolidated Limited EL6466 EL7130 EL8265 EL8408 EL6588 EL7194 EL7599 EL8330 Gold Limited, Tom’s Waterhole Pty Ltd. FMG are farming in to are FMG Pty Ltd. Waterhole Tom’s Gold Limited, Sams Reef Mining Resources Imperial Pty FMG Gold 2 Pty Ltd, Ltd. mineral rights. rights. mineral 88 per cent by Fortescue Metals Group Ltd and 12 per cent by Baosteel Resources International Co. Ltd, a subsidiary of China’s a subsidiary Ltd, of China’s International Co. Resources Baosteel by and 12 per cent Ltd Metals Group Fortescue by 88 per cent New South Wales Tenure Wales SouthNew 8. Joint Venture with FMG Resources Pty Ltd and Gold and Copper Resources Pty Ltd, Blue Jacket Mining Pty Resou Columbine Pty Ltd, Resources Pty and Gold and Copper Ltd, Ltd Resources with FMG Venture Joint 8.

4. Subject to Sale Agreement. Agreement. Sale to Subject in title. interest holds 31 per cent IB Pty Formosa Steel Ltd. Pty Magnetite and Formosa Ltd with FMG Venture Joint 2. Nor with Northern Ltd. Star Resources Venture 3. Joint 4. Fortescue between Venture Joint Unincorporated 5. being litigated. and is currently has been contested Title 6. Gum Ridge Pty Mining Gosling Creek Pty Pty Ld, Ltd, Resources Pty and Gold and Copper Ltd Resources with FMG Venture Joint 7. Notes Iron Bridge Li Pty of FMG subsidiaries are Ltd and Power Water 1. North Pty Pty FMG and Pilbara Magnetite Ltd Pilbara FMG Ltd, Holder: Gosling Pty Creek Ltd Granted Status: Earning 51% metallic status: rights mineral FMG (Note 7) rights mineral EL6481 EL6377 EL8409EL8423 EL8410 EL8425 EL8411 EL8488 EL8412 EL8445 EL8413 EL6040 Pty Ltd Resources Holder: Gold and Copper Granted Status: Earning 51% metallic status: rights mineral FMG (Note 7) rights mineral Holder: Gold and Copper Resources Pty Ltd Resources Holder: Gold and Copper Granted Status: Earning 51% metallic status: rights mineral FMG (Note 7) rights mineral EL8331 EL8332 Holder: Columbine Resources Pty Resources Ltd Holder: Columbine Granted Status: 51% metallic Earning status: rights mineral FMG (Note 8) rights mineral EL6378 EL6315 Ore reserves and mineral resources tenements reserves resources and mineral Ore Mining Pty Jacket Holder: Blue Ltd Granted Status: Earning 51% metallic status: rights mineral FMG (Note 8) rights mineral Ore reserves and mineral resources tenements

Ecuador

Santa Ana 100000149 8a 50000628 10a 50000640 8b 90000344 2a 100000211 8c 90000345 7a 70000247 8d 90000346 7b 70000240 8e 50000629 7c 70000241 8f 50000630 7d 70000248 8g 50000631 7e 70000243 8h 50000632 7f 70000245 8i 50000633 7g 70000242 8j2 50000636 7h 70000244 8k 50000634 7i 70000246 8l 50000635 7j 10000324 8m 50000639 7k 20000218 8n 50000637 7l 10000325 8o 50000638 7m 10000326 8p 50000641

32 concessions covering over 1,300km2

42 FORTESCUE METALS GROUP LIMITED I ORE RESERVES AND MINERAL RESOURCES CORPORATE SOCIAL RESPONSIBILITY

FY17 Strategy

FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 43 Corporate social responsibilty highlights

TOTAL RECORDABLE INJURY ABORIGINAL WORKFORCE FREQUENCY RATE FOR FY17 2.9 15.8% FY16 - 4.3 FY16 - 14%

FEMALE EMPLOYMENT FIRST ALL-FEMALE CLASS OF FORTESCUE 17.3% VTEC FY16 - 15% GRADUATES

CONTRACTS AWARDED TO ABORIGINAL GREENHOUSE GAS EMISSIONS COMPANIES AND JVs INTESITY REDUCED BY A$1.95 BILLION 8% FY16 - A$1.8 BILLION FROM FY15

EMPLOYEES RETURNED FROM TOTAL PROCUREMENT SPEND PARENTAL LEAVE IN AUSTRALIA 96% 98.5% PREVIOUS 12 MONTHS: 85% FY16 - 98.49%

44 FORTESCUE METALS GROUP LIMITED I CORPORATE SOCIAL RESPONSIBILITY Operating Ore Reserves Corporate Social 45

Overview Governance Financial Report Remuneration Report Corporate Directory and Financial Review and Mineral Resources Responsibility

2017 ANNUAL REPORT

I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Targets Opportunities and Objectives people in the Pilbara, promoting diversity in the diversity promoting people in the Pilbara, challenges such environmental workplace and addressing important change are as climate elements of the Company’s CSR strategy. legalisation and obligations with all relevant Compliance and environmental safety health, including those that govern which the to minimum standard obligations is the absolute adheres. Company of the Company’s the foundation values form Fortescue’s values set the ethical and moral These CSR. to approach of Code is undertaken. which business by compass Fortescue’s of personal and Conduct establishes the essential standards base supports strong This conduct and behaviour. corporate the and leads into and Principles Commitments the Company’s opportunities and implementation of policies, development the application of specific informing ultimately and objectives, and plans. processes business unit targets, CSR starts to commitment CEO and is with the Fortescue’s team. supported and executive the Board by and Principles Fortescue’s Policies Fortescue’s Code of Conduct Vision and Values and Vision Voluntary Commitments Creating shared value value shared Creating a has demonstrated in 2003, Fortescue its formation Since its benefit from ensuring communities to commitment strong achieve to that in order It and development. recognises growth iron most profitable cost, lowest its vision of being the safest, Social must be Responsibility (CSR) Corporate producer, ore embedded within all aspects of its business. to approach is at the heartEmpowerment of Fortescue’s practical to determination outcomes. CSR – as is an absolute individuals within ability empower to It is about Fortescue’s find best; to be their to and communities its Company and societal business the most complex solutions to innovative the business bottom to improve find ways challenges and to change. positive line while delivering to ethically, behave to commitment CSR is Fortescue’s the protect to stakeholders, the Company’s value for create and partner empower to and with communities environment build capabilityto and capacity. social change positive delivering to commitment Fortescue’s ending disadvantage amongst Aboriginal to contributing by Fortescue’s approach Fortescue’s Corporate social responsibility

CORPORATE SOCIAL RESPONSIBILITY

Setting Creating positive Safeguarding high standards social change the environment By championing By building local communities, By protecting biodiversity, safety, preserving Aboriginal empowering Aboriginal people managing water resources, heritage, embracing diversity and eradicating modern slavery reducing Greenhouse Gas and demonstrating integrity in Fortescue’s supply chain emissions and waste

CSR strategy

Through its updated CSR Strategy, Fortescue aims to The process included a review of existing CSR activities further enhance the highly developed sustainability and against international reporting standards, peer review community initiatives already in place. The document also and consideration of known internal and external outlines its commitments, objectives and targets in a central stakeholder interests and materiality. The strategy location. The strategy continues Fortescue’s approach of was also informed by the United Nations Global Impact setting stretch targets and holding itself and others to and the International Council of Mining and Metals account to deliver tangible, durable results. Principles.

Updating the CSR strategy brought together expertise and Fortescue will maximise the resources and energy experience from across the business. Following a thorough of its business to deliver positive outcomes in the three consultation and review process, the views of stakeholders core areas highlighted above. The full Corporate Social have been used to form the basis of Company-wide Responsibility Report is available at www.fmgl.com.au. objectives and relevant indicators.

46 FORTESCUE METALS GROUP LIMITED I CORPORATE SOCIAL RESPONSIBILITY GOVERNANCE

FY17 Review

FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 47 Governance Overview

Effective corporate governance is a critical element contributing to the longer term success of Fortescue. The Board and all levels of management are fully committed to maintaining and enhancing corporate governance so that it continues to contribute to Fortescue’s vision to be the safest, lowest cost, most profitable iron ore producer.

Fortescue supports the intent of the ASX Corporate Corporate accountability: Ensuring that there is Governance Council Principles and Recommendations clarity of decision making within the Company, with 3rd Edition (Principles and Recommendations) and meets processes in place to ensure that the right people the specific requirements of the Principles and Recommendations, have authorised approval to make effective and efficient unless disclosed otherwise. The cornerstone principles of decisions, with appropriate consequences delivered for corporate governance at Fortescue are: failures to follow those processes.

Transparency: Being clear and unambiguous about the Stewardship: Developing and maintaining Company’s structure, operations and performance, both externally a Company-wide recognition that Fortescue is and internally, and maintaining a genuine dialogue with, and managed for the benefit of its shareholders, taking providing insight to, stakeholders and the market generally. account of the interests of other stakeholders.

Integrity: Developing and maintaining a corporate culture The full Corporate Governance Statement is available committed to ethical behaviour and compliance with the law. at www.fmgl.com.au.

Fortescue’s governance framework

Corporate culture and values

Board of Directors

Board sub-committees

Audit and Risk Remuneration Finance Management and Nomination Committee Committee Committee

Delegation of Authority Framework Risk Management

Chief Executive Officer

Policies and procedures and procedures Policies Executive and Line management

Independent Assurance Functions

48 FORTESCUE METALS GROUP LIMITED I GOVERNANCE FINANCIAL REPORT

FY17 Performance

FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 49 Directors’ report At 30 June 2017

Your Directors present their report on the Fortescue consolidated group, comprising the Company and its controlled entities, for the year ended 30 June 2017.

Directors The Directors of the Company in office during the year and Ordinary Performance until the date of this report, their qualifications, experience Director shares rights and directorships held in listed companies at any time during A Forrest 1,038,800,000 - the last three years, are set out on pages 10 to 12. M Barnaba 20,000 - The Directors’ meetings, including meetings of the Company’s N Power 2,951,238 3,424,686 Board of Directors and of each Board committee held during E Gaines 50,000 - the year ended 30 June 2017 and the number of meetings J Baderschneider 138,000 - attended by each Director are shown in section 2.3 of the Corporate Governance Statement1. C Huiquan - - S Warburton 50,750 - The relevant interests of each Director in the shares and P Bingham-Hall 35,000 - performance rights issued by the Company as notified by the Directors to the Australian Securities Exchange in accordance J Morris - - with section 5205G(1) of the Corporations Act 2001, at the date The remuneration of Directors and Key Management of this report are as follows: Personnel are detailed in the Remuneration Report on pages 101 to 132.

1 Corporate Governance Statement is available on Fortescue’s website at www.fmgl.com.au

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d

Years 2017 ANNUAL REPORT

I Remaining contractual life life contractual section 5 Risk Management. 1 Number FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Vested and Vested end of the year end of the year exercisable at the the at exercisable 2017 2016

Number of the year of the year strategic priorities and outlook,strategic key aspects of operating an . Balance at the end at Balance 2

A$ Exercise price price Exercise . 2 Corporate Social Responsibility Report is available on Fortescue’s website at www.fmgl.com.au website Social Responsibility ReportCorporate on Fortescue’s is available Corporate Governance Statement is available on Fortescue’s website at www.fmgl.com.au website on Fortescue’s is available Statement Governance Corporate Shortperformance term rights 2016Shortperformance term rights 2017 performance term rights 2015Long performance term rights 2016Long performance term rights 2017Long - - - 1,376,649 - 1,719,915 - 2,643,422 1,376,649 6,800,593 3,254,445 - - 13.5 - - 14.3 0.3 13.5 14.3 Total dividendTotal per share A$ cents 45 15 Net profit after taxNet profit Interim dividend dividendFinal per share A$ cents US$m per share A$ cents 20 2,093 25 3 985 12 financial performance and key business risks are contained in the following sectionsfollowing Report: of the Annual contained in the financial performance risks are and key business Overview on pages 3 Statement Governance Corporate 28 and on pages 15 to Review Operating and Financial 14, to 1 2 Unissued shares under performance rights Unissued shares Details of the performance as follows: rights outstanding at 30 June 2017 are Greenhouse Gas Emissions and energy Greenhouse Reporting and Energy and recognises Greenhouse National Act 2007 (Cth) Government’s with the Australian complies Fortescue climate to its contribution reduce gas emissions to use and minimise greenhouse energy actively improve to its responsibility change and impact on the environment. Corporate in Fortescue’s reporting and presented compliance are Gas strategy, Emissions and energy details of Greenhouse The Social Responsibility Report Environmental regulation and compliance regulation Environmental on placed focus impacts with an appropriate of its operations, minimising the environmental to is committed Fortescue regulations. with environmental and compliance matters of environmental monitoring continuous are legislation environmental with the relevant performance including compliance environmental details of Fortescue’s The Social Responsibility Report Corporate in Fortescue’s presented The following dividend payments were made during the year: were dividend payments following The paid in October 2016 2016 of A$0.12 per share, ended 30 June the year fully franked dividend for Final • in April 2017. paid 30 June 2017 of A$0.20 per share, ended the year Interim fully franked dividend for • Dividends Fortescue’s principal activities during the year were exploration, development, production, processing and sale of iron ore. ore. iron and sale of production, processing development, exploration, activities principal were the year during Fortescue’s principal activities during FY17. Group’s of the nature to the changes no significant were There including a discussion of operations, overviewThe of Fortescue’s Operating and financial review and financial Operating In FY17, 2,084,214 of the 2016 short term performance rights were exercised and 895,536 long term performance rights were performance and 895,536 long term rights were In FY17, 2,084,214 of the 2016 short exercised performance term rights were shares. to converted Directors’ report Directors’ 30 June 2017 At Directors’ report At 30 June 2017

Company Secretary Future developments Alison Terry and Ian Wells are Company Secretaries The Overview section set out on pages 3 to 14 and the of Fortescue. Details of their qualifications and experience Operating and Financial Review section set out on pages 15 to are set out on page 12. 28 of this Annual Report, provide an indication of the Group’s likely developments and expected results. In the opinion of Directors and Officers indemnities and insurance the Directors, disclosure of any further information about these matters and the impact on Fortescue’s operations could Since the end of the previous financial year, the Company result in unreasonable prejudice to the Group and has not has paid premiums to insure the Directors and Officers of been included in this report. Fortescue. Significant changes in state of affairs The liabilities insured are legal costs that may be incurred in defending civil proceedings that may be brought against There have been no significant changes in the state of affairs the Officers in their capacity as Officers of Fortescue, and any of Fortescue, other than those disclosed in this report. other payments arising from liabilities incurred by the Officers in connection with such proceedings, other than where such Proceedings on behalf of the Group liabilities arise out of conduct involving a wilful breach of duty No person has applied to the Court under section 237 of the by the Officers or the improper use by the Officers of their Corporations Act 2001 for leave to bring proceedings on behalf position or of information to gain advantage for themselves or of Fortescue, or to intervene in any proceedings to which someone else or to cause detriment to Fortescue. Fortescue is a party, for the purposes of taking responsibility on behalf of Fortescue for all or part of those proceedings. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating No proceedings have been brought or intervened in on to other liabilities. Conditions of the policy also preclude behalf of the Company with leave of the Court under section disclosure to third parties of the amount paid for the policy. 237 of the Corporations Act 2001.

Non-audit services Rounding of amounts The Company may decide to employ the auditor on The Company is of a kind referred to in ASIC Corporations assignments additional to their statutory audit duties where Instrument 2016/191, issued by the Australian Securities and the auditor has relevant expertise and experience and where Investments Commission, relating to the “rounding off” of the auditor’s independence is not compromised. amounts in the financial report. Amounts in the financial report Details of the amounts paid or payable to the auditor have been rounded off in accordance with that instrument to PricewaterhouseCoopers Australia and related entities the nearest million dollars, unless otherwise stated. for audit and non-audit services provided during the year are set out in note 19 to the financial statements. Events occurring after the reporting period

The Board of Directors has considered the position and, On 20 July 2017, the Federal Court of Australia handed down in accordance with advice received from the Audit and Risk its reasons for judgment in the matter of Warrie (formerly TJ) (on behalf of the Yindjibarndi People) v State of Western Australia, in Management Committee, is satisfied that the provision of which Fortescue is the second respondent. In the Company’s the non-audit services is compatible with the general view, the Court’s decision has no impact on the current and future standard of independence for auditors imposed by the operations or mining tenure at the Solomon Hub. Fortescue has Corporations Act 2001 and did not compromise the auditor no commercial concerns and does not anticipate any material independence requirements of the Corporations Act 2001 impact following the decision. for the following reasons: On 28 July 2017, the Company executed a US$525 million • All non-audit services have been reviewed by the Audit and revolving credit facility. Risk Management Committee to ensure they do not impact On 1 August 2017, the Company announced the repurchase of the impartiality and objectivity of the auditor the Solomon Power Station for a total of US$348 million.

• None of the services undermine the general principles On 21 August 2017, the Directors declared a final dividend of relating to auditor independence as set out in APES 110 25 Australian cents per ordinary share payable in October 2017. Code of Ethics for Professional Accountants. Signed in accordance with a resolution of the Directors.

The auditor’s independence declaration, as required under section 307C of the Corporations Act 2001, is set out on page 53 and forms part of this report.

Andrew Forrest AO Chairman

Dated in Perth this 21st day of August 2017.

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my 2017 ANNUAL REPORT

I in relation to the audit; and to in relation FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Corporations Act 2001 Act Corporations ards Legislation. ards H WA 6000, GPO Box D198, PERTH WA 6840 Perth Perth PricewaterhouseCoopers, ABN 52 780 433 757 52 780 ABN PricewaterhouseCoopers, PERT Terrace, 125 St Georges Place, Brookfield T: +61 8 9238 3000, F: +61 8 9238 3999, www.pwc.com.au Stand Professional under approved scheme a by limited Liability Partner 21 August 2017 August 21 Nick Henry Partner PricewaterhouseCoopers knowledge and belief, there have been: have there knowledge and belief, of the requirements independence of the auditor (a) no contraventions As lead auditor for the audit of Fortescue Metals Group Limited for the year ended 30 June 2017, I declare that to the best of that to ended 30 June 2017, I declare the year for Limited Metals Group Fortescue the audit of for auditor lead As Auditor’s independence declaration independence Auditor’s (b) no contraventions of any applicable code of professional conduct in relation to the audit. the to conduct in relation of professional applicable code of any (b) no contraventions during the period. and the entities it controlled Limited Metals Group declaration is in respect of Fortescue This Independent auditor’s report

To the shareholders of Fortescue Metals Group Limited Report on the audit of the financial report

Our opinion

In our opinion:

The accompanying financial report of Fortescue Metals Group Limited (the Company) and its controlled entities (together, the Group) is in accordance with the Corporations Act 2001, including:

1. giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial performance for the year then ended

2. complying with Australian Accounting Standards and the Corporations Regulations 2001.

What we have audited

The Group financial report comprises:

• the consolidated statement of financial position as at 30 June 2017 • the consolidated income statement for the year then ended • the consolidated statement of comprehensive income for the year then ended • the consolidated statement of changes in equity for the year then ended • the consolidated statement of cash flows for the year then ended • the notes to the consolidated financial statements, which include a summary of significant accounting policies • the directors’ declaration.

Basis for opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial reportsection of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

PricewaterhouseCoopers, ABN 52 780 433 757 Brookfield Place, 125 St Georges Terrace, PERTH WA 6000, GPO Box D198, PERTH WA 6840 T: +61 8 9238 3000, F: +61 8 9238 3999, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

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e

us rt rt

le, le, bly es 2017 ANNUAL REPORT

I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE matters Key audit Key potential volatility in the calculation of materiality in the volatility that aris potential rporate and Group Operations functions are centralised and this Operations functions centralised and Group are rporate ated iron ore mining operations and infrastructure comprising vario mining operations and infrastructure comprising ore iron ated e considered material if individually or in aggregate, they could reasona they could if individually or in aggregate, material e considered Audit scope Audit Materiality Independent auditor’s report Independent auditor’s Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial in our audit of the of most significance judgement, were that, in our professional those matters are Key audit matters report in the context of our audit of the financial addressed as a who were key audit matters The period. report the current for Key audit matters Key as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and controls processes accounting its structure and management of the Group, the geographic taking account as a whole, into and the industry in which it operates. scope Audit involving estimates accounting significant example, made subjective judgements; for the Group on where Our audit focused uncertain events. assumptions and inherently future primaryThe activity is the operation of integr of the Group commentary any on the Further, opinion on these matters. a separate do not provide and we our opinion thereon, and in forming and Risk the Audit to the key audit matters communicated We in that context. is made of a particular outcomes audit procedure Management Committee. Materiality thre 5% of the approximately materiality of US$79 million, which represents Group used overall the purpose of our audit we For be expected to influence the economic decisions of users taken on the basis of the financial report. taken on the basis of the financial decisions of users economic the be expected influence to report financial an opinion on the give performed be able to to that we enough work ensure of our audit to the scope tailored We years. previous and two the current for of the Group tax before profit average year timing of our audit and the nature, the scope determine to considerations, with qualitative together applied this threshold, We report on the financial the effect of misstatements evaluate as a whole. and to and extent of our audit procedures it is the benchmark against which the performance is most the Group of in our view, tax because, before profit chose Group We address to average year a three applied We measured. commonly and port a rail network and Hamersley ranges, Our audit procedures mines in the Chichester Hedland. facilities in Port ore iron of the Co performed many where predominately in Perth were project. Hedland and the Iron Bridge magnetite An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. misstatement. report material the financial about whether from assurance free is reasonable provide to designed An audit is ar They fraud or error. arise due to Misstatements may Our audit approach Our audit was supported and Christmas Creek, the mining operations at Solomon, the port visits to Cloudbreak by and rail facilities at Po from iron ore price fluctuations between years. fluctuationsyears. price between ore iron from acceptable the range of commonly judgement, noting it is within based on our professional utilised a 5% threshold We thresholds. Independent auditor’s report

Key audit matter How our audit addressed the key audit matter Revenue from iron ore sales (Refer to note 3 and 11(a)(i)) For the year ended 30 June 2017 the Group recognised In addition to the audit procedures we performed over revenue of US$8,335 million from the sale of iron ore. revenue, we addressed the two specific non-cash period We focussed on this area as revenue from iron ore sales end adjustments to revenue as follows: was the most significant balance in the consolidated income statement. Our audit approach included additional focus on two specific non-cash period end adjustments to revenue as follows: (i) Re-measurement of provisional sales

The value of revenue recognised each period is impacted For a sample of sales contracts open at balance date, we by the Group’s provisional pricing arrangements where inspected the sales contracts and assessed key terms of the final sales price is determined based on iron ore prices the sale including the volume of sales and duration of the subsequent to the vessel’s arrival at the port of discharge. provisional sales period.

The Group initially recognises sales at the shipment date For the sample of sales contracts tested, we recalculated price and re-estimates the consideration to be received the recorded provisional pricing adjustments to sales revenue using the spot iron ore price at the end of each reporting and found them to be consistent with external commodity period, with the impact of the iron ore price movements price data. until final settlement recorded as an adjustment to operating sales revenue.

ii) Deferred income

The Group has some customers who pay in advance for We checked that the sale contracts underlying the payments the future supply of iron ore. These advance prepayments from customers received in advance included terms that the are treated as deferred income and recognised as revenue obligation will be settled by the future physical delivery of in the income statement when the associated iron ore is iron ore to determine if classification as deferred income was delivered to the customer. appropriate.

For prepayments treated as deferred income at balance date, we obtained confirmation from the Group’s customers of the arrangement and remaining value outstanding to be settled in the future delivery of iron ore. Financing of ore carriers (Refer to note 9(a) and 12) During the year ended 30 June 2017, the Group entered into To assess the financial transaction, we performed the a new financing arrangement for the purchase cost following audit procedures, amongst others: of eight Fortescue ore carriers (ore carriers) that the Group has committed to procure to provide shipping services to its • We inspected the financing agreements between the customers. Group and the financier and assessed whether the Group’s conclusion to treat the arrangement as a finance lease was The ore carriers financing arrangements attach to individual consistent with its accounting policies vessels and are drawn down upon delivery of each vessel. At 30 June 2017, the Group had accepted delivery of four ore • We checked that the transaction costs associated with this carriers and had received US$234 million of finance funding. new finance arrangement were capitalised and included within the effective interest rate applied to the finance This financing transaction was a key audit matter as it was a arrangement. non-routine arrangement and due to its impact on the Group’s financial position at 30 June 2017.

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I it matter FORTESCUE METALS GROUP LIMITED METALS FORTESCUE of the IBJV Project, which indicated that further which indicated of the IBJV Project, evaluation of a advance in was required and optimisation work is continuing decision and such work development observe plant in June 2017 to state the current processing also inspected of the IBJV minutes We of this project. an and noted the year meetings throughout Committee further for was approved program work FY18 budgeted of the pilot plant evaluation testing and evaluation asset was as an exploration IBJV Project and the status of the IBJV Project with the current consistent the IBJV Committee. by granted approvals plan and experts the closure who reviewed Group’s estimates cost associated be consistent activities them to rehabilitation and found each mining operation of mine plan for with the life external against rates market and discount inflation rates be consistent them to data and found them obligations and found and rehabilitation restoration of the Group’s with our understanding be consistent to plans. rehabilitation operations and associated exploration and evaluation assets on a sample basis and exploration and evaluation and/or evaluation activitieswhether ongoing exploration supportexist to of these assets capitalisation the continued policies accounting under the Group’s which they were by including the process forecasts cost the mathematical accuracy also checked of We developed. the underlying calculations • We held discussions with Group management on the status held discussions with Group We • mine and Stage 1 pilot the IBJV Project visited We • of the treatment continued that the Group’s found We • and objectivity the competence of the considered We • and the expected evaluated timing of restoration We • assumptions including benchmarked key market related We • to relating in the year movements assessed provision We • To assess the carrying value of the Group’s exploration exploration assess the carrying value of the Group’s To audit performed we the following and evaluation assets, amongst others: procedures, its to had right of tenure the Group assessed whether We • and rehabilitation restoration assess the Group’s To audit procedures, performed we the following obligations, amongst others: and restoration rehabilitation the Group’s evaluated We • evaluation expenditure. evaluation expenditure. Restoration and rehabilitation obligations obligations and rehabilitation Restoration 13 and 24(e)) to note Refer and restoration for provisions recognised Group The obligations of US$559 million as at rehabilitation 30 June 2017. as the calculation of these was a key audit matter This in estimating the Group judgement by requires provisions the removal for required of possible works the magnitude of cost the future works, of infrastructure and rehabilitation performing activities the work, when rehabilitation will take and assumptions such as inflation and the economic place such liabilities. to relevant rate discount such estimate to the Group by judgement required The is furthercosts the fact has been by compounded that there activity or and rehabilitation the Group by restoration limited benchmark estimates against which to precedent historical costs. of future and rehabilitation the restoration reviews Group The using experts obligations on an annual basis, provide to review This support appropriate. in its assessment where changes of the effects of any consideration incorporates to approach anticipated and the Group’s in regulations and rehabilitation. restoration This was a key audit matter as the continued recognition recognition as the continued was a key audit matter This the around the Group judgement by as an asset requires exploitation or sale of future through likelihood of recovery that recovery the asset. If the Group a judgement is made by capitalised amount the relevant is unlikely, of the expenditure income the to expense off as an impairment will be written statement. and capitalised exploration majorityThe of the Group’s regional Pilbara its wholly owned to evaluation assets relate in the Iron Bridge and its 69% interest exploration tenements (IBJV)Venture which is evaluating the Iron Bridge Joint project (the IBJV Project). magnetite judgement that particularly on the Group’s focussed We evaluation asset which an exploration and the IBJV remains as a to be categorised sufficiently has not progressed asset. development Key audit matter How our audit addressed the key aud the key addressed our audit How audit matter Key assets and evaluation Carrying of exploration value to note 12 and 24(b)) (Refer an asset of recognised 30 June 2017 the Group At and US$813 million of exploration Independent auditor’s report Independent auditor’s Independent auditor’s report

Other information

The directors are responsible for the other information. The other information comprises the Overview, Operating and Financial Review, Ore Reserves and Mineral Resources, Corporate Social Responsibility, Governance, Directors’ Report and Corporate Directory included in the Group’s Annual Report for the year ended 30 June 2017 but does not include the financial report and our auditor’s report thereon.

Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the directors for the financial report

The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report.

A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor’s report.

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2017 ANNUAL REPORT

I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE tion and presentation of the remuneration report in accordance report of the remuneration in accordance tion and presentation . Our responsibility is to express an opinion on the remuneration report, on the remuneration an opinion based on express is to . Our responsibility . Corporations Act 2001 Act Corporations Corporations Act 2001 Act Corporations Perth Perth Independent auditor’s report Independent auditor’s Partner 21 August 2017 August 21 Nick Henry Partner PricewaterhouseCoopers Responsibilities the prepara for responsible are of the Company directors The with section the 300A of Standards. Auditing with Australian our audit conducted in accordance Report on the remuneration reportReport on the remuneration report remuneration Our opinion on the ended 30 June 2017. reportyear the for report 132 of the directors’ remuneration the 105 to included in pages audited have We with ended 30 June 2017 complies the year for Limited In report Metals Group the remuneration our opinion, of Fortescue section 300A of the Directors’ declaration

In the Directors’ opinion:

(a) the financial statements and notes set out on pages 61 to 99 are in accordance with theCorporations Act 2001, including:

(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and

(ii) giving a true and fair view of the consolidated entity’s financial position at 30 June 2017 and of its performance for the year ended on that date, and

(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable, and

(c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group identified in note 20 will be able to meet any obligations or liabilities to which they are, or may become, subject to by virtue of the deed of cross guarantee described in note 20.

Note 1(a) confirms that the financial statements comply with International Financial Reporting Standards as issued by the International Accounting Standards Board.

The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001.

This declaration is made in accordance with a resolution of the Directors.

Andrew Forrest AO Chairman

Dated in Perth this 21st day of August 2017.

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2016 US$m 2016 US$m 2017 ANNUAL REPORT

I he accompanying notes. he accompanying -1 -1 2017 US$m 2017 3,559 2,019 US$m 5 (4,888) (5,064) FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Note Cents Cents Note Basic earnings per share earnings per shareDiluted 8 8 67.3 67.0 31.6 31.6 Equity holders of the CompanyNon-controlling interest net of tax the year, for income comprehensive Total Company: attributable to the ordinary equity holders of the profit for Earnings per share 2,093 985 2,093 984 Other comprehensive income items income Other comprehensive net of tax the year, for income comprehensive Total to: net of tax is attributable the year, for income comprehensive Total 2,093 985 - - Consolidated statement of comprehensive income of comprehensive statement Consolidated ended 30 June 2017 the year For Profit for the year after taxfor the income Profit 2,093 985 Profit before income tax income before Profit Income tax expenseyear after taxfor the income Profit attributable to: year after tax is for the income Profit Equityholders of the Company Non-controlling interest 14(a) 2,093 2,967 (874) 1,354 985 2,093 (369) 984 Other incomeOther expensesexpenses net finance tax and income before Profit incomeFinance expensesFinance 3,450 1,815 4 6 7 14 7 (123) (211) 19 (502) 7 (675) 214 Operating sales revenue of sales Cost profit Gross 3 8,447 7,083 Consolidated income statement income Consolidated 2017 ended 30 June year the For Profit for the year after taxfor the income Profit income: Other comprehensive 2,093 985 The above consolidated income statement and consolidated statement of comprehensive income should be read in conjunction with t in conjunction should be read income statement of comprehensive statement and consolidated income consolidated The above Consolidated statement of financial position At 30 June 2017

2017 2016 Note US$m US$m

ASSETS Current assets Cash and cash equivalents 9(b) 1,838 1,583 Trade and other receivables 10(a) 141 241 Inventories 10(c) 588 554 Other current assets 38 45 Total current assets 2,605 2,423

Non-current assets Trade and other receivables 10(a) 3 4 Property, plant and equipment 12 16,493 16,867 Intangible assets 715 Other non-current assets 728 Total non-current assets 16,510 16,914 Total assets 19,115 19,337

LIABILITIES Current liabilities Trade and other payables 10(b) 708 622 Deferred income 10(d) 461 485 Borrowings and finance lease liabilities 9(a) 121 93 Provisions 13 227 167 Current tax payable 14(a) 685 267 Total current liabilities 2,202 1,634

Non-current liabilities Trade and other payables 10(b) 50 69 Deferred income 10(d) 447 308 Borrowings and finance lease liabilities 9(a) 4,350 6,678 Provisions 13 509 489 Deferred joint venture contributions 17(c) 266 253 Deferred tax liabilities 14(b) 1,557 1,500 Total non-current liabilities 7,179 9,297 Total liabilities 9,381 10,931 Net assets 9,734 8,406

EQUITY Contributed equity 9(d) 1,289 1,301 Reserves 39 33 Retained earnings 8,392 7,058

Equity attributable to equity holders of the Company 9,720 8,392 Non-controlling interest 14 14 Total equity 9,734 8,406

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

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2016 US$m 2017 ANNUAL REPORT

I 19 22 (47) (28) (755) (114) (412) (599) 2017 US$m FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Note and equipment - joint operations (13) (56) The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. conjunction with the accompanying read in should be flows statement of cash consolidated The above Non-cash investing and financing activities are disclosed in note 9(c)(ii). and financing activities disclosed in note Non-cash are investing Net increase (decrease) in cash and cash equivalents (decrease) Net increase of the year and cash equivalents at the beginning Cash changes on cash and cash equivalents rate Effects of exchange the end of the year at and cash equivalents Cash 9(b) (4) 1,583 259 1,838 2,381 (775) (23) 1,583 Net cash outflow from financing from activitiesNet cash outflow (3,282) (2,863) Net cash outflow from investing activities investing from Net cash outflow financing from activities flows Cash leasesfinance and borrowings from Proceeds leases and finance of borrowings Repayment paid costs Finance (715) (358) 1,734 (4,187) (2,695) - Payments for property, plant and equipment - Fortescue plant property, for Payments plant property, for Payments Dividends paid deposits of customer Repayment (716) trust share employee by of shares Purchase (304) (27) - (21) (5) Net cash inflow from operating activities operating from Net cash inflow activities investing from flows Cash partners joint venture from Contributions disposal of plant and equipment from Proceeds 9(c)(i) 4,256 2,446 2 12 2 - Cash receipts from customers from receipts Cash suppliers and employees to Payments operations from generated Cash received Interest (3,744) 8,768 (3,736) 5,024 6,693 2,957 Consolidated statement of cash flows of cash statement Consolidated 2017 ended 30 June year the For Interest paid Interest Income tax (paid) received (375) 66 Cash flows from operating activities operating from flows Cash Consolidated statement of changes in equity For the year ended 30 June 2017

Attributable to equity holders of the Company Non- Contributed Retained controlling Total equity Reserves earnings Total interest equity US$m US$m US$m US$m US$m US$m

Balance at 1 July 2015 1,294 46 6,184 7,524 13 7,537 Profit for the year - - 984 984 1 985 Total comprehensive income for the year, net of tax - - 984 984 1 985

Transactions with owners: Purchase of shares under employee share plans (21) - - (21) - (21) Employee share awards exercised net of employee contributions 28 (12) - 16 - 16 Expired options and rights - (3) 3 - - - Equity settled share-based payment transactions - (3) - (3) - (3) Dividends paid - - (113) (113) - (113) Other - 5 - 5 - 5

Balance at 30 June 2016 1,301 33 7,058 8,392 14 8,406 Profit for the year - - 2,093 2,093 - 2,093 Total comprehensive income for the year, net of tax - - 2,093 2,093 - 2,093

Transactions with owners: Purchase of shares under employee share plans (27) - - (27) - (27) Employee share awards exercised net of employee contributions 15 (7) - 8 - 8 Equity settled share-based payment transactions - 16 - 16 - 16 Dividends paid - - (762) (762) - (762) Other - (3) 3 - - - Balance at 30 June 2017 1,289 39 8,392 9,720 14 9,734

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

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2017 ANNUAL REPORT

I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE

Taxation Taxation 14 Taxation 14(a) Income tax expense 14(b) tax assets and liabilities Deferred 14(c) tax losses Unrecognised items Unrecognised 82 15 and contingencies Commitments 16 after the reporting occurring period Events 81 84 Other information 83 81 17 84 party Related transactions payments 18 Share-based 19 auditors Remuneration of 20 guarantee Deed of cross 21 entity information financial Parent 22 in other entities Interests 23 85 Summary policies accounting of significant 86 24 and judgements estimates Critical accounting 90 99 88 87 87 89

12 plant and equipment Property, 13 Provisions 79 80 9 Capital management management 9 Capital 9(a) equity lease liabilities and finance Borrowings 9(b) 70 Contributed and cash equivalents Cash 9(d) 9(c) Dividends information flow Cash 9(e) capital 70 10 Working 73 72 10(a) income Inventories and other receivables Trade 10(c) 10(b) Deferred and other payables Trade 73 10(d) 11 risk management Financial 74 74 75 74 75 75 76 2 Segment information information 2 Segment 3 income revenue Operating sales 4 Other 5 expenses of sales Cost 6 Other 7 67 expenses and finance income Finance 8 Earnings per share 67 69 68 68 68 69 Key balance sheet items balance Key Capital management Capital Basis of preparation Basis of 1 Basis of preparation performance Financial 66 Notes to the consolidated financial statements financial consolidated the to Notes 2017 ended 30 June year the For Notes to the consolidated financial statements I Basis of preparation For the year ended 30 June 2017

1 Basis of preparation

The financial statements cover the consolidated group comprising Fortescue Metals Group Limited (the Company) and its subsidiaries, together referred to as Fortescue or the Group.

These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board (AASB), including Australian Interpretations, and the Corporations Act 2001.

(a) Compliance with IFRS

The financial statements of the Group comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

(b) Historical cost convention

The financial statements have been prepared under the historical cost convention, except for certain financial instruments, which have been measured at fair value.

(c) Functional and presentation currency

The financial statements are presented in United States dollars, which is the Group’s reporting currency and the functional currency of the Company and the majority of its subsidiaries.

(d) Critical accounting estimates

The preparation of financial statements requires management to use estimates, judgements and assumptions. Application of different assumptions and estimates may have a significant impact on Fortescue’s net assets and financial results. Estimates and assumptions are reviewed on an ongoing basis and are based on the latest available information at each reporting date. Actual results may differ from the estimates.

The areas involving a higher degree of judgement and complexity, or areas where assumptions are significant to the financial statements are:

• Iron ore reserve estimates • Exploration and evaluation expenditure • Development expenditure • Property, plant and equipment - recoverable amount • Rehabilitation estimates.

The accounting estimates and judgements applied to these areas are disclosed in note 24.

(e) Changes in accounting policy - consolidated statement of cash flows

Under AASB 107 Statement of Cash Flows, interest can be classified as an operating, investing or financing activity and the Group had previously disclosed interest paid as a financing activity and interest received as an investing activity. In the current period, Fortescue changed its accounting policy to disclose interest as an operating activity in the consolidated statement of cash flows to better align with the policy adopted by its industry peers.

The impact of this change in policy is to reclassify US$412 million (FY16: US$599 million) of interest paid out of financing activities and US$19 million (FY16: US$22 million) of interest received out of investing activities into operating activities.

(f) Rounding of amounts

All amounts in the financial statements have been rounded to the nearest million dollars, except as indicated, in accordance with the ASIC Corporations Instrument 2016/191.

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2016 2016 2016 US$m US$m US$m 2017 ANNUAL REPORT

I 112 136 452 296 2017 2017 2017 8,335 6,923 7,995 6,787 US$m US$m US$m 8,447 7,083 8,447 7,083 4,744 3,195 and amortisation, exploration, FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Note Financial performance Financial

I d to all aspects of the integrated operation, with aspects all d to of the integrated terest, tax, depreciation tax, depreciation terest, location of Australia, and this is the location of the vast and this location of Australia, esenting the Group’s consolidated financial performance. consolidated esenting the Group’s tion on the basis of geographical segments, segment revenue revenue segment segments, tion on the basis of geographical is based on the geographical location of customers. is based on the geographical and the related shipment of product. and the related majority of the Group’s assets. In presenting informa In presenting assets. majority of the Group’s development and other expenses, as a key measure of its financial performance. The reconciliation of Underlying EBITDA of Underlying EBITDA reconciliation The financial performance. of its as a key measure and other expenses, development below. after tax is presented net profit the to (b) (b) Major customer information Segment information Other revenue ore iron Sale of joint venture - 24 Sale of iron ore Sale of iron Operating sales revenue Operating ore the sale of iron US$3,702 million (2016: US$1,577 million), arising from to amounted one customer from Revenue China Other Income tax expenseyear after taxfor the income Profit information (a) Geographical in the geographical predominantly operates Fortescue 2,093 14 985 (874) (369) Finance incomeFinance expensesFinance and amortisationDepreciation and otherExploration, development tax income before Profit 6 5, 6 7 (1,243) 7 (51) (1,244) 19 (502) (136) 2,967 (675) 214 1,354 Fortescue’s chief operating decision maker, identified as the Chief Executive Officer, reviews the Group’s financial financial Group’s the reviews Officer, the Chief Executive identified as decision maker, chief operating Fortescue’s regar performance operating decisions having and makes significant no Accordingly, basis. consolidated for management purposes on a internally presented the key financial information identified in pr been reportable have operating segments in defined as earnings before Underlying EBITDA uses Fortescue Revenue from external customers from Revenue Underlying EBITDA For the year ended 30 June 2017 ended 30 the year For Notes to the consolidated financial statements statements financial consolidated to the Notes 2 3 Notes to the consolidated financial statements I Financial performance For the year ended 30 June 2017

4 Other income

2017 2016 US$m US$m

Net foreign exchange gain 13 - Other 17 14 7

5 Cost of sales

2017 2016 US$m US$m

Mining and processing costs 1,780 2,092 Rail costs 192 201 Port costs 183 204 Operating leases 29 76 Shipping costs 929 781 Government royalty 545 446 Depreciation and amortisation 1,227 1,223 Other operating expenses 3 41 4,888 5,064

Total employee benefits expense included in cost of sales and administration expenses is US$579 million (2016: US$538 million).

6 Other expenses

2017 2016 US$m US$m

Administration expenses 56 52 Exploration, development and other1 51 136 Depreciation and amortisation 16 21 Net foreign exchange loss -2 123 211

1 During the year ended 30 June 2016, exploration, development and other expenses included an impairment provision following suspension of the Nullagine Iron Ore Joint Venture operations of US$32 million, and provisions in relation to specific assets and capital rojectsp deferred pending market conditions of US$59 million.

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2016 Cents 2016 US$m 2017 ANNUAL REPORT

I 19 22 13 12 19 214 502 675 67.367.0 31.6 31.6 2017 Cents 2017 US$m FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Financial performance Financial

I Finance income and finance expenses finance and income Finance (d) of securities the classification on Information ordinary be potential to considered plan are incentive under the Fortescue employees to rights granted Performance dilutive. the extent which they are to to earnings per share of diluted been included in the determination and have shares 18. the performance set out in note to rights are Details relating Weighted average number of ordinary shares used as the denominator of ordinary number used as the denominator shares average Weighted in calculating basic earnings per share earnings per share: of diluted calculation for Adjustments ordinary sharesPotential number of ordinary ordinary and potential average shares Weighted per share earnings in calculating diluted used as the denominator 3,122,303,415 3,117,370,849 3,111,190,703 3,111,801,515 11,112,712 5,569,334 Diluted per share earnings of earnings used in calculating Reconciliation (b) used to the ordinary attributable Company equity holders of the Profit earnings per sharein calculating basic and diluted used as the denominator number of shares average Weighted (c) US$m US$m Number Number 2,093 984 Basic Earnings per share (a) Earnings per share Interest expense on borrowings and finance lease liabilities and finance expense on borrowings Interest on early debt redemptionLoss Other 430 621 59 42 Interest income Interest Gain on early debt redemption - 192 Finance expenses Finance Finance income Finance For the year ended 30 June 2017 ended 30 the year For Notes to the consolidated financial statements statements financial consolidated to the Notes 8 7 Notes to the consolidated financial statements I Capital management For the year ended 30 June 2017

9 Capital management

Fortescue’s capital management policy supports its strategic objectives and provides a framework to maintain a strong capital structure to deliver consistent returns to its shareholders and sustain future developments and expansion of the business.

Fortescue’s capital includes shareholders’ equity, reserves and net debt. Net debt is defined as a combination of cash and cash equivalents, borrowings and finance lease liabilities.

2017 2016 Note US$m US$m

Borrowings 9(a) 3,653 6,266 Finance lease liabilities 9(a) 818 505 Cash and cash equivalents 9(b) (1,838) (1,583) Net debt 2,633 5,188

Equity attributable to equity holders of the Company 9,720 8,392 Non-controlling interest 14 14 Total equity 9,734 8,406

Capital management involves a continuous process of:

• Evaluating capital requirements against the risks arising from Fortescue’s activities and its operating environment • Raising, refinancing and repaying of debt • Development, maintenance and implementation of the dividend policy, including the dividend reinvestment plan.

To achieve its primary capital management objective of maintaining a strong capital structure, Fortescue has developed target ranges for a number of financial indicators. These indicators include gearing, net gearing, debt to Underlying EBITDA and interest coverage ratio, and are monitored together with a number of other financial and non-financial indicators. Target ranges for the financial ratios vary upon the investment and commodity cycles. During periods of intensive investment, for example expansion programs, or a commodity downturn, the capital management policy contemplates interim ratio levels returning to a targeted longer term level. Interim levels acknowledge and consider the requirements, in certain circumstances, for remedial actions to be taken.

During the financial year ended 30 June 2017, Fortescue repaid US$2.7 billion of debt lowering gearing levels and improving credit metrics, together with a US$1.5 billion refinancing to extend the debt maturity profile and earliest maturity to 2022. The terms and conditions of Fortescue’s debt facilitates its strategy of refinancing and debt repayment prior to maturity, with the 2022 senior secured notes prepayable from March 2018, at the Company’s sole option. No financial maintenance covenants apply to any of the Company’s debt.

(a) Borrowings and finance lease liabilities

2017 2016 US$m US$m

Senior secured notes 70 70 Senior unsecured notes 98 Finance lease liabilities 42 11 Senior secured credit facility - 4 Total current borrowings and finance lease liabilities 121 93

Senior secured notes 2,093 2,082 Senior unsecured notes 1,481 475 Finance lease liabilities 776 494 Senior secured credit facility - 3,627 Total non-current borrowings and finance lease liabilities 4,350 6,678 Total borrowings and finance lease liabilities 4,471 6,771

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Total Total US$m 2017 ANNUAL REPORT

I years years US$m After five After five FORTESCUE METALS GROUP LIMITED METALS FORTESCUE US$m year and year five years five Between one one Between (63) (245) (509) (817) Capital management Capital

US$m Within Within I one year one year a coupon rate of 4.75 per cent and have a non-call of 5 years have and life of 4.75 per cent rate a coupon a non-call of 7 years. have and life of 5.125 per cent rate a coupon Station, the Fortescue River Gas Pipeline and heavy mobile fleet. In the event of default, the assets revert and heavyto mobile fleet. the lessor. of default, the assets River Gas In the event Pipeline Station, the Fortescue of voluntary debt repayments and US$976 million paid through refinancing. The facility was due to mature in The facilityto mature due was refinancing. and US$976 million paid through of voluntary debt repayments within a range of rate value of US$3,676 million and a coupon June 2019 and as at 30 June 2016 had a face LIBOR + 3.25 per cent. LIBOR + 2.75 to US$478 million and a coupon interest of 6.875 per cent. These notes were repaid in full during the year ended in full during the year repaid were notes These of 6.875 per cent. interest US$478 million and a coupon 30 June 2017. US$2,160 million), a coupon rate of 9.75 per cent and will become callable at Fortescue’s option from March 2018. March from option callable at Fortescue’s become and will of 9.75 per cent rate US$2,160 million), a coupon subject certain and its subsidiaries, to limited all of the assets of the Company principally over secured are notes The indebtedness. senior unsecured basis with all existing and future on a pari passu with the security shared exceptions, issue. The proceeds were utilised to repay the remaining US$976 million of the senior secured credit facility and credit US$976 million of the senior secured the remaining repay to utilised were proceeds The issue. in April 2022. mature to due notes of senior unsecured the outstanding US$478 million redeem 30 June 2016 Finance lease liabilitiesFinance 41 183 594 818 Lease expenditure commitments expenditure Lease Effect of discounting lease liabilitiesFinance 30 June 2017 commitments expenditure Lease Effect of discounting 73 295 10 120 954 468 50 1,322 (79) 1,093 445 (285) 1,681 505 (499) (863) Capital management (continued) management Capital (v) lease liabilities Finance the Solomon Power carriers, with ore contractual associated to commitments relate liabilities largely lease Finance (iv) facilitySenior credit secured US$2.7 billion in full through facility was repaid credit 2017, the senior secured ended 30 June During the year (iii) Senior notes unsecured on issue: notes senior unsecured had the following 30 June 2017 the Company At value of US$750 million, a face 2022, have in May mature due to notes Senior unsecured • value of US$750 million, a face 2024, have in May mature due to notes Senior unsecured • value of in April 2022, had a face mature due to on issue were notes 30 June 2016 the senior unsecured At (ii) Senior notes secured value of US$2,160 million (30 June 2016: a face 2022, have in November mature due to are notes senior secured The (a) lease liabilities (continued) and finance Borrowings (i) Refinancing notes a US$1,500 million senior unsecured completed successfully Fortescue ended 30 June 2017, During the year For the year ended 30 June 2017 ended 30 the year For Notes to the consolidated financial statements statements financial consolidated to the Notes 9 Notes to the consolidated financial statements I Capital management For the year ended 30 June 2017

9 Capital management (continued)

(a) Borrowings and finance lease liabilities (continued)

(vi) Summary of movements in borrowings and finance lease liabilities

Senior Senior Senior secured unsecured Finance secured notes notes leases credit facility Total US$m US$m US$m US$m US$m

Balance at 1 July 2015 2,248 2,063 461 4,797 9,569 Initial recognition - - 51 - 51 Interest expense 221 104 61 235 621 Interest and finance lease repayments (183) (126) (64) (229) (602) Transaction costs 6 13 - 15 34 Foreign exchange gain - - (4) - (4) Repayments (140) (1,571)1 - (1,187) (2,898) Balance at 30 June 2016 2,152 483 505 3,631 6,771

Balance at 1 July 2016 2,152 483 505 3,631 6,771 Initial recognition - 1,500 323 - 1,823 Interest expense 221 41 70 98 430 Interest and finance lease repayments (210) (40) (84) (93) (427) Transaction costs - (16) - 40 24 Foreign exchange loss - - 4 - 4 Repayments - (478) - (3,676) (4,154) Balance at 30 June 2017 2,163 1,490 818 - 4,471

1 The year ended 30 June 2016 includes repayment of US$1,049 million of the 2019 senior unsecured notes and US$522 million of the 2022 senior unsecured notes.

Information about Fortescue’s exposure to interest rate risk and foreign exchange rate risk disclosed in note 11.

(b) Cash and cash equivalents

2017 2016 US$m US$m

Cash at bank 923 769 Short term deposits 915 814 1,838 1,583

Cash and cash equivalents do not have any restrictions by contractual or legal arrangements.

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US$m equity 2016 2016 US$m US$m Contributed 2017 ANNUAL REPORT

I 28 28 32 21 US$m shares shares 2017 2017 US$m 2,093 985 US$m Treasury Treasury 1,296 51,296 1,301 (7) 1,289 US$m Issued shares shares FORTESCUE METALS GROUP LIMITED METALS FORTESCUE equity Number Capital management Capital

Contributed Contributed 3,113,435,477 3,111,339,230 I (362,674) shares shares Number Treasury Treasury (2,458,921) - 14,939,948 14,939,948- (7,214,860) -- (7,214,860) 5,118,613 28 - 5,118,613 - 28 (27) 15 (27) 15 Issued shares shares Number 3,113,798,151 3,113,798,151 2017 2016 Employee share awards exercised awards share Employee contributions net of employee 30 June At At 30 June At under of shares Purchase plans share employee At 1 July 2015At under of shares Purchase plans share employee exercised awards share Employee contributions net of employee 3,113,798,151 (114,590) 3,113,683,561 - 1,296 (15,188,032) (15,188,032) (2) - 1,294 (21) (21) Capital management (continued) management Capital Acquisition of property, plant and equipment by means of finance leases means of finance plant and equipment by of property, Acquisition equity (d) Contributed capital (i) Share (110) (51) Increase (decrease) in trade and other payablesIncrease (decrease) income in deferred (decrease) Increase benefit provisions in employee Increase (decrease) tax payableIncrease in current tax liabilities in deferred Increase activities operating from Net cash inflow (ii) and financing activities Non-cash investing 67 (117) 115 8 (3) 4,256 (418) 418 2,446 57 302 128 Working capital adjustments: Working in trade and other receivablesDecrease in inventories(Increase) decrease in other assets Decrease 101 (34) 52 219 (c) information flow Cash (i) activities from operating inflow cash tax to net after profit of income Reconciliation Depreciation and amortisationDepreciation and otherExploration, development Share-based expense (benefit) payment loss exchange foreign Net unrealised Net loss (gain) on early debt redemptionOther non-cash items 1,243 51 1,244 59 2 136 (3) 16 (150) 22 Profit for the year after tax for the income Profit For the year ended 30 June 2017 ended 30 the year For Notes to the consolidated financial statements statements financial consolidated to the Notes 9 Notes to the consolidated financial statements I Capital management For the year ended 30 June 2017

9 Capital management (continued)

(d) Contributed equity (continued)

(ii) Issued shares Issued shares are fully paid and entitle the holders to one vote per share and the rights to participate in dividends. Ordinary shares participate in the proceeds on winding up of the Company in proportion to the number of shares held.

(iii) Treasury shares Movements in treasury shares represent acquisition of the Company’s shares on market and allocation of shares to the Company’s employees from the vesting of awards and exercise of rights under the employee share-based payment plans.

(e) Dividends

(i) Dividends paid during the year 2017 2016 US$m US$m

Final fully franked dividend for the year ended 30 June 2016: A$0.12 per share (30 June 2015: A$0.02 per share) 285 46 Interim fully franked dividend for the half-year ended 31 December 2016: A$0.20 per share (31 December 2015: A$0.03 per share) 477 67 Total dividends paid 762 113

(ii) Dividends declared and not recognised as a liability

2017 2016 US$m US$m

Final fully franked dividend: A$0.25per share (2016: A$0.12 per share) 614 285

(iii) Franking credits At 30 June 2017, franking credits available were A$856 million (2016: A$791million). The payment of the final dividend for the year ended 30 June 2017 will reduce the franking account balance by A$334 million.

10 Working capital

(a) Trade and other receivables 2017 2016 US$m US$m

Trade debtors - iron ore 113 210 GST receivables 911 Other receivables 19 20 Total current receivables 141 241

Other receivables 34 Total non-current receivables 3 4

The carrying value of the receivables approximates their fair value. Information about Fortescue’s exposure to foreign currency risk, interest rate risk and price risk pertaining to the trade and other receivables balances is disclosed in note 11.

Disclosures relating to receivables from related parties are set out in note 17.

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2016 2016 2016 US$m US$m US$m 2017 ANNUAL REPORT

I - 111 50 50 277 229 350 374 447 197 234 190 588 554 2017 2017 2017 US$m US$m US$m FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Capital management Capital

I Working capital (continued) capital Working

Total current deferred income deferred current Total prepayments Iron ore income non-current deferred Total 461 485 447 308 (d) Deferred income (d) Deferred prepayments Iron ore prepayment access Port prepayment Port access 111 111 Total inventories Total of sales, cost expensed through Inventories at cost. stated are and materials stores stockpiles, warehouse Iron ore million (2016: US$3,796 million). US$3,411 to ended 30 June 2017 amounted during the year including depreciation, items to specific relation in write-offsrecognised inventory were of US$31 million (2016: US$11 million) During the year, identified as obsolete. that were and materials stores of warehouse Iron ore stockpilesIron ore Total current payables current Total deposits Customer non-current payablesTotal (c) Inventories 708 50 622 69 (b) (b) and other payables Trade payables Trade Other and accruals payables Other and accruals payables and materials stores Warehouse 474 432 - 19 311 325 For the year ended 30 June 2017 ended 30 the year For Notes to the consolidated financial statements statements financial consolidated to the Notes 10 Notes to the consolidated financial statements I Capital management For the year ended 30 June 2017

11 Financial risk management

Fortescue is exposed to a range of financial risks, including market risk, credit risk and liquidity risk. Fortescue established a risk management framework that provides a structured approach to the identification and control of risks across the business, sets the appropriate risk tolerance levels and incorporates active management of financial risks. The risk management framework has been approved by the Board of Directors, through the Audit and Risk Management Committee. The day to day management responsibility for execution of the risk management framework has been delegated to the CEO and the CFO. Periodically the CFO reports to the Audit and Risk Management Committee on risk management performance, including management of financial risks.

The key elements of financial risk are further explained below.

(a) Market risk

Market risk arises from Fortescue’s exposure to commodity price risk and the use of interest bearing and foreign currency financial instruments. It is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in iron ore price (commodity price risk), interest rates (interest rate risk) and foreign exchange rates (foreign currency exchange risk).

(i) Commodity price risk Fortescue is exposed to the commodity price risk, as its iron ore sales are predominantly subject to the prevailing market prices. Fortescue has limited ability to directly influence market prices of iron ore and manages the commodity price risk through focus on improving its cash margins and strengthening the corporate balance sheet through refinancing and early debt repayments.

The majority of Fortescue’s iron ore sales contracts are structured on a provisional pricing basis, with the final sales price determined using the iron ore price indices on or after the vessel’s arrival to the port of discharge. The estimated consideration in relation to the provisionally priced contracts is marked to market using the spot iron ore price at the end of each reporting period with the impact of the iron ore price movements recorded as an adjustment to operating sales revenue. At 30 June 2017, Fortescue had 27 million tonnes of iron ore sales (2016: 14 million tonnes) that remained subject to provisional pricing, with the final price to be determined in the following financial year. A 15 per cent movement in the realised iron ore price on these provisionally priced sales would have an impact on the Group’s profit of US$161 million (2016: US$85 million), before the impact of taxation. This analysis assumes all other factors, including the foreign currency exchange rates, held constant.

(ii) Interest rate risk The Group’s interest rate risk arises from variable rates on the finance leases relating to ore carriers and, to a lesser extent, changes in rates applicable to the short term deposits forming part of cash and cash equivalents.

Fortescue’s policy is to reduce interest rate risk over the cash flows on its long term debt funding through the use of fixed rate instruments whenever appropriate.

Fortescue’s variable rate financial assets and liabilities at the end of the financial year are summarised below:

2017 2016 Note US$m US$m

Cash and cash equivalents 9(b) 1,838 1,583 Finance leases 9(a) (213) - Senior secured credit facility - (3,631) 1,625 (2,048)

Management analyses the Group’s interest rate exposure on a regular basis by simulation of various scenarios taking into consideration refinancing, renewal of existing positions, alternative financing options and hedging.

A change of five basis points in interest rates in variable instruments would have an impact on the Group’s profit of US$1 million (2016: US$1 million), before the impact of taxation. This analysis assumes that all other factors remain constant, including foreign currency rates.

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2016 US$m 2017 ANNUAL REPORT

I 41 54 2017 US$m FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Capital management Capital

I the movements in the Australian dollar exchange rate, with rate, dollar exchange in the Australian the movements a significant portion of its operating costs and capital expenditure incurred and paid in Australian dollars. and paid in portiona significant incurred and capital expenditure costs of its operating into has not entered Group The either spot or short contracts. into entering exchange dollars by forward term purposes. hedge accounting transactions for that qualify as hedging set out below:are Financial risk management (continued) risk management Financial A change of five per cent in the Australian dollar exchange rate would have a net impact on the Group’s profit of profit a net impact on the Group’s would have rate dollar exchange Australian cent in the per A change of five that all other variables, assumes analysis This the impact of taxation. US$23 million (2016: US$21million), before constant. remain price, ore and iron rates including interest risk Credit (b) the risk that a counterparty to to in a financial loss will default on its contractual risk refers obligations resulting Credit deposits with banks cash and cash equivalents, risk arises from Credit basis. and is managed on a consolidated Fortescue, customers. from receivables and financial institutions and in China. located customers ore risk with the majority of its iron of credit a concentration is exposed to Fortescue a policy by risk is mitigated of only trading with creditworthy further counterpartiesThis and Fortescue mitigates of the value of 95 per cent approximately covering of credit of letters obtaining security risk by in the form its credit counterparties trading ended bad debt expense from in the years any has not recognised Fortescue shipped. ore iron 30 June 2017 and 30 June 2016. cash and short-term risk from the treasury held in banks is managed by deposits the credit department to exposure The institutions with holding funds with a range of financial risks by minimises the credit Fortescue the CFO. by and monitored the Board. by ratings approved credit not been settled within which have US$6 million) of trade receivables had US$5 million (2016: 30 June 2017, Fortescue At a number of customers to relate past due receivables These with the customer. agreed and conditions the normal terms impaired. history not considered is no recent of default and are whom there for Borrowings and finance lease liabilities and finance Borrowings and other payablesTrade liabilities financial Total 150 143 351 501 336 479 Cash and cash equivalentsCash and other receivablesTrade assets financial Total 19 22 30 24 (a) risk (continued) Market (iii) risk currency exchange Foreign to and is exposed in Australia, operates Fortescue Australian to dollars States convert United to at which risk management policy specific levels target is to Fortescue’s in US dollar), carryingThe dollars (expressed Australian in denominated amounts of the financial assets and liabilities liabilities Financial Financial assets Financial For the year ended 30 June 2017 ended 30 the year For Notes to the consolidated financial statements statements financial consolidated to the Notes 11 Notes to the consolidated financial statements I Capital management For the year ended 30 June 2017

11 Financial risk management (continued)

(c) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as and when they fall due. Fortescue manages liquidity risk by maintaining adequate cash reserves and banking facilities, by continuously monitoring actual and forecast cash flows and by matching the maturity profiles of its assets and liabilities.

The table below analyses Fortescue’s financial liabilities into relevant maturity groupings based on the period to the contracted maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Between Between Between Total Less than 6 and 12 1 and 2 2 and 5 Over 5 contractual Carrying 6 months months years years years cash flows amount US$m US$m US$m US$m US$m US$m US$m

30 June 2016 Non-interest bearing 622 - 19 - 50 691 691 Fixed rate 158 158 318 951 3,835 5,420 3,140 Variable rate 73 70 140 3,820 - 4,103 3,631 853 228 477 4,771 3,885 10,214 7,462

30 June 2017 Non-interest bearing 708 - - 50 - 758 758 Fixed rate 190 190 394 4,026 1,699 6,499 4,258 Variable rate 11 11 22 71 193 308 213 909 201 416 4,147 1,892 7,565 5,229

Management monitors rolling forecasts of the Group’s cash and overall liquidity position on the basis of expected cash flows.

(d) Fair values

All financial assets and financial liabilities, with the exception of derivatives, are initially recognised at the fair value of the consideration paid or received, net of directly attributable transaction costs. Subsequently, the financial assets and financial liabilities, other than derivatives, are measured at amortised cost.

Fortescue’s listed debt instruments, including senior secured notes and senior unsecured notes are classified as level 1 financial instruments in the fair value hierarchy, with their fair values based on quoted market prices at the end of the financial year, as outlined below.

2017 2016 Carrying Fair Carrying Fair value value value value US$m US$m US$m US$m

Senior secured notes 2,163 2,460 2,152 2,386 Senior unsecured notes 1,490 1,507 483 455 Senior secured credit facility - - 3,631 3,499

The carrying values of other financial assets and financial liabilities approximate their fair values.

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69 53 Total Total US$m 2017 ANNUAL REPORT

I 68 61 US$m Development Development

- - intangible assets, exploration assets, intangible FORTESCUE METALS GROUP LIMITED METALS FORTESCUE US$m under Assets development

1 (8) Key balance sheet items sheet balance Key and

US$m I evaluation evaluation Exploration Exploration

- - operty, plant and equipment, operty, and Land US$m buildings full value of US$32 million, a provision in relation to specific assets to in relation full value of US$32 million, a provision

- - (4,521) (257) - - (1,052) (5,830) (3,537) (195) - - (834) (4,566) and Plant Plant US$m equipment equipment 13(b) 13(b) Note Other - (1) (13) (4) 5 (13) Other (12) - (39) (47) (25) (123) At 30 June 2017At 11,156 796 813 291 3,437 16,493 At 30 June 2016At 11,456 849 772 227 3,563 16,867 Cost depreciation Accumulated 15,677 1,053 813 291 4,489 22,323 Net carrying value 1 July 2016 At of assetsTransfer AdditionsDepreciation Changes in restoration estimate and rehabilitation 11,456 573 849 111 (984) 10 772 (62) (4) - 227 (602) - 57 3,563 16,867 19 670 - (4) (218) - (1,264) 838 Cost depreciation Accumulated 14,993 1,044 772 227 4,397 21,433 At 1 July 2015At of assetsTransfer AdditionsDepreciation Changes in restoration estimate and rehabilitation 12,107 207 872 (898) 38 52 768 (61) (19) - 245 (255) - 70 3,737 31 17,729 - 284 2 (241) - (1,200) 406 Net carrying value and capital projects deferred pending market conditions of US$59 million, and a US$34 million write-off pending market conditions and capital projects deferred of previously tenements. on relinquished capitalised exploration costs and evaluation and development expenditure. and evaluation and development leases of US$505 million (2016: US$434 million). plant and equipment includes assets held under finance Property, 9(a). disclosed in note held are leases under which these assets are details of the finance The suspension of the following included an impairment provision ended 30 June 2016 other movements During the year the operations for Venture Joint Iron Ore Nullagine Transfers of assets were made between the categories of pr the categories made between of assets were Transfers Property, plant and equipment and plant Property, For the year ended 30 June 2017 ended 30 the year For Notes to the consolidated financial statements statements financial consolidated to the Notes 12 Notes to the consolidated financial statements I Key balance sheet items For the year ended 30 June 2017

13 Provisions 2017 2016 US$m US$m

Employee benefits 174 167 Restoration and rehabilitation 53 - Total current provisions 227 167

Employee benefits 32 Restoration and rehabilitation 506 487 Total non-current provisions 509 489

(a) Provision for employee benefits

Movements in the provision for employee benefits during the financial year are set out below:

2017 2016 US$m US$m

At 1 July 169 172 Changes in employee benefits provision 138 134 Amounts paid (130) (137) At 30 June 177 169

Provision for employee benefits includes the Group’s liability for long service leave, annual leave and employee incentives. The current portion includes all of the accrued annual leave and the portion of long service leave where employees have completed their required period of service. The estimated amount of current annual leave and long service leave not expected to be paid in the next 12 months is US$38 million (2016: US$30 million).

(b) Provision for restoration and rehabilitation

Movements in the provision for restoration and rehabilitation during the year are set out below:

2017 2016 US$m US$m

At 1 July 487 430 Changes in restoration and rehabilitation estimate 69 53 Unwinding of discount 34 At 30 June 559 487

The provision for restoration and rehabilitation has been made for all disturbed areas at the reporting date based on current cost estimates for rehabilitation and infrastructure removal, discounted to their present value based on expected timing of future cash flows.

Provisions for restoration and rehabilitation activities exclude ongoing rehabilitation performed as a part of normal operations.

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2016 US$m group group 2016 US$m group group Australian Australian 2017 ANNUAL REPORT

Consolidated Consolidated I 57 128 817 241 874 369 2016 US$m group group 2017 US$m group group Consolidated Consolidated Consolidated Consolidated FORTESCUE METALS GROUP LIMITED METALS FORTESCUE 2017 US$m group group Australian Australian Taxation

I 2017 US$m group group Consolidated Consolidated mining operations. The Australian Group includes Fortescue’s includes Fortescue’s Group Australian The mining operations. iods (1) 3 (15) (15) Taxation

Income tax expenseIncome tax rateEffective 874 29.5% 869 29.8% 369 27.3% 358 27.1% Profit before income tax expense before Profit of 30 per cent tax rate at the Australian Tax and developmentResearch of prior per tax expense in respect of income Adjustments variations and other transactions adjustments exchange Foreign jurisdiction impact of overseas Tax based paymentsShare (6)Other 890 2,967 (6) 874 2,913 (4) (2) 406 1,354 - (4) 1,321 396 (1) 7 (5) (8) (5) 5 (8) - (9) 5 - (9) (8) (10) Fortescue operates in a number of jurisdictions and pays income taxes accordingly. The Company’s effective corporate corporate effective Company’s The accordingly. taxes income in a number of jurisdictions operates and pays Fortescue The majority of the Group’s in each jurisdiction. statutory of the tax rates is reflective income tax rate corporate income with the location of its consistent in Australia paid are taxes wholly-owned entities. Australian Australia This is in line with the cent. was 29.5 per tax rate global effective ended 30 June 2017, the Group’s the year For of 30 per cent. tax rate corporate Current tax Current For the year ended 30 June 2017, Fortescue is a signatory to the Board of Taxation’s voluntary Tax Transparency Code Code Transparency Tax voluntary Taxation’s of is a signatoryBoard the 30 June 2017, Fortescue ended to the year For parts. separate in two be publicly available, to of additional tax disclosures a number TTC recommends (“TTC”). The in this note. included are requirements A disclosure Part The (a) tax expense Income tax Deferred (i) tax expense reconciliation income facie Prima For the year ended 30 June 2017 ended 30 the year For Notes to the consolidated financial statements statements financial consolidated to the Notes 14 Notes to the consolidated financial statements I Taxation For the year ended 30 June 2017

14 Taxation (continued)

(a) Income tax expense (continued)

(ii) Reconciliation of income tax expense to current tax payable

Consolidated Consolidated group group 2017 2016 US$m US$m

Income tax expense in the consolidated income statement 874 369 Deferred tax expense (57) (128) Prior year under/over provision 6 72 823 313

Tax payments made to tax authorities1 (115) (39) Impact of foreign exchange on income tax payable2 (23) (7) Current tax payable at 30 June 685 267

1 In Australia Fortescue pays pay as you go (PAYG) instalments based on a set rate, as advised by the Australian Taxation Office. 2 Fortescue’s income tax payments are made in the local currency of the country where taxes are due, being predominantly Australian Dollars.

(b) Deferred tax assets and liabilities

Fortescue recognises a timing difference where there are differences between the accounting and tax treatment of an expense resulting in future tax payable or receivable amount. Deferred tax assets and liabilities are measured at the relevant tax rates enacted for the reporting period. The company’s major deferred tax assets and liabilities also arise in Australia, specifically with reference to the level of capital investment in the Pilbara.

Consolidated Consolidated group group 2017 2016 US$m US$m

Deferred tax assets 470 355 Deferred tax liabilities (2,027) (1,855) (1,557) (1,500)

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2016 US$m 2017 ANNUAL REPORT

I 2017 US$m consolidated group consolidated the income statement statement the income Charged / (credited) to / (credited) Charged 2016 US$m FORTESCUE METALS GROUP LIMITED METALS FORTESCUE 2017 US$m Taxation consolidated group consolidated

Deferred tax liabilities Deferred I 2016 US$m 470 355 (2,027) (1,855) (57) (128) 2017 US$m Deferred tax assets Deferred consolidated group consolidated Temporary differences arising from differences Temporary At 30 June 2017, the Group had income tax losses with a tax benefit of US$23 million (2016: US$12 million) which are not (2016: US$12 million) which are tax losses with a tax benefit of US$23 million had income 30 June 2017, the Group At to the extent future only the benefit of tax losses of anticipated recognises Group The tax assets. as deferred recognised losses do not expire. These jurisdictions. or gains in relevant taxable income (c) tax losses Unrecognised Exploration expenditureDevelopment and equipment plant Property, Inventories losses (gains) exchange Foreign Provisions -Other financial liabilities -Other items - - - - 225 1 (1,220) (123) - - (1,079) (118) 220 (1) (540) - (141) 25 202139 (5) (5) (510) (127) (169) 13(11) (26) (1) (30) (121) 4 (4) (13) (5) (6) 1 (2) (4) 88 12 24 41 9 16 (1) Taxation (continued) Taxation (b) (b) tax assets and liabilities (continued) Deferred tax assets and liabilities in deferred of and movements Composition For the year ended 30 June 2017 ended 30 the year For Notes to the consolidated financial statements statements financial consolidated to the Notes 14 Notes to the consolidated financial statements I Unrecognised items For the year ended 30 June 2017

15 Commitments and contingencies

Operating Capital leases Total US$m US$m US$m

30 June 2016 Within one year 290 61 351 Between one and five years 183 98 281 473 159 632

30 June 2017 Within one year 327 64 391 Between one and five years 16 24 40 343 88 431

(i) Capital commitments

At 30 June 2017, Fortescue had contractual commitments to capital expenditure not recognised as liabilities, including commitments associated with the construction of ore carriers of US$196 million (2016: US$271 million) within 12 months and nil (2016: US$183 million) between one and five years, after the end of the year.

(ii) Operating lease commitments

Fortescue leases various offices and other premises under non-cancellable operating leases expiring within one to four years. The leases have varying terms, escalation clauses and renewal rights. The terms of the leases are renegotiated on renewal. Fortescue also leases mobile equipment, plant and machinery and office equipment under non-cancellable operating leases. The leases have varying terms.

Fortescue had no material contingent liabilities or contingent assets at 30 June 2017 or at the date of this report. Fortescue occasionally receives claims arising from its activities in the normal course of business. In the opinion of the Directors, all such matters are covered by insurance or, if not covered, are without merit or are of such a kind or involve such amounts that would not have a material adverse impact on the operating results or financial position if settled unfavourably.

16 Events occurring after the reporting period

On 20 July 2017, the Federal Court handed down its reasons for judgment on the matter of Warrie (formerly TJ) (on behalf of the Yindjibarndi People) v State of Western Australia, in which Fortescue is the second respondent. In the Company’s view, the Court’s decision has no impact on the current and future operations or mining tenure at the Solomon Hub. Fortescue has no commercial concerns and does not anticipate any material impact following the decision. On 28 July 2017, the Company executed a US$525 million revolving credit facility. On 1 August 2017, the Company announced the repurchase of the Solomon Power Station for a total of US$348 million. On 21 August 2017, the Directors declared a final dividend of 25 Australian cents per ordinary share payable in October 2017.

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2016 2016 US$’000 US$’000 2017 ANNUAL REPORT

I 274 1,742 2,785 30,749 2,273 (1,242) 9,883 7,054 2017 2017 US$’000 US$’000 FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Other information

I Related partyRelated transactions Deferred joint venture contributions joint venture Deferred receivables Current to the Bridge Joint liability contributions contributions reflects Iron the timing of cash call joint venture deferred The and other joint operation partners. Fortescue by Venture 265,800 253,361 Other revenue Detailed information about the remuneration received by each Key Management Personnel is provided in the in the is provided each Key Management Personnel by received the remuneration about Detailed information report 132. remuneration on pages 101 to (c) parties with other related Transactions with joint operations partners: transactions occurred following The Short benefits employee term Share-based payments 7,469 8,161 (a) operations and joint Subsidiaries 22. set out in note subsidiaries and joint operations are in significant Interests (b) remuneration Personnel Management Key benefits employment Post 141 135 For the year ended 30 June 2017 ended 30 the year For Notes to the consolidated financial statements statements financial consolidated to the Notes 17 Notes to the consolidated financial statements I Other information For the year ended 30 June 2017

18 Share-based payments

(a) Employee Performance Rights Plans

During the year ended 30 June 2017, Fortescue issued 1,874,545 (2016: 3,870,459) short term performance rights and 3,666,789 (2016: 9,211,984) long term performance rights to employees and senior executives, convertible to one ordinary share per right. The short term rights vest over one year, and the long term rights vest over three years and have an exercise price of nil (2016: nil).

2017 2016 Number Number

Outstanding at 1 July 18,355,858 11,622,892 Performance rights granted 5,541,334 13,082,443 Performance rights forfeited or lapsed (5,122,418) (2,866,096) Performance rights converted or exercised (2,979,750) (3,483,381) Outstanding at 30 June 15,795,024 18,355,858

The weighted average fair value of performance rights granted during the year ended 30 June 2017 was A$4.85 per right (2016: A$1.79) for the short term performance rights and A$4.61 per right (2016: A$1.72) for the long term performance rights. The estimated fair value of the short term performance rights was determined using a trinomial option pricing model and the estimated fair value of the long term performance rights was determined using a combination of analytical approaches, binomial tree and Monte-Carlo simulation. The fair value estimation takes into account the exercise price, the effective life of the right, the impact of dilution, the share price at grant date, expected price volatility of the underlying share, the effect of additional market conditions, the expected dividend yield, estimated share conversion factor and the risk free interest rate for the term of the right.

The weighted average inputs used to determine the fair value of performance rights granted during the year ended 30 June 2017 were:

• Share price: A$4.99 (2016: A$1.81) • Effective life: 2.2 years (2016: 2.2 years) • Exercise price: nil (2016: nil) • Dividend yield: 3.5 per cent (2016: 2 per cent) • Volatility: 68 per cent (2016: 52 per cent) • Risk free interest rate: 2 per cent (2016: 2 per cent)

Details of performance rights outstanding at 30 June 2017 are presented in the following table:

Vested and Balance at exercisable Remaining Exercise the end of at the end contractual price the year of the year life Vesting conditions A$ Number Number Years Market Non-market

Short term performance rights 2016 - 1,376,649 1,376,649 13.5 - Yes Short term performance rights 2017 - 1,719,915 - 14.3 - Yes Long term performance rights 2015 - 2,643,422 - 0.3 - Yes Long term performance rights 2016 - 6,800,593 - 13.5 Yes Yes Long term performance rights 2017 - 3,254,445 - 14.3 Yes Yes - 15,795,024 1,376,649

(b) Employee expenses

Total expenses arising from share-based payments transactions recognised during the period as part of employee benefit expense were as follows:

2017 2016 US$m US$m

Share-based payment expense (benefit) 16 (3)

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2016 US$’000 2017 ANNUAL REPORT

I -- 63 46 338 34 122 194 2017 US$’000 FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Other information

I t of comprehensive income, consolidated statement of statement consolidated income, t of comprehensive During the year ended 30 June 2017, these group ended 30 June 2017, these group During the year guarantee: the deed of cross added to entities were Nyidinghu Pty• FMG Limited Services Pty Procurement Limited • FMG Pty Gas Limited Pipeline • Pilbara Marine Pty• Pilbara Limited Pty Limited Power • Pilbara Pty Limited JV Company • FMG Ashburton Pty• FMG Limited Mining Pty Alliance • Pilbara Limited Services• Fortescue Pty Limited Pty Limited Personnel • FMG Services Personnel Pty Limited • FMG • CSRP Pty Limited Pty Limited Training • FMG into the deed, the wholly-owned entities have been relieved been relieved the wholly-owned the deed, entities have into ement of comprehensive income and consolidated statement statement and consolidated income ement of comprehensive financial position and consolidated statement of changes in equity statement consolidated financial position and of changes in equity for the year ended 30 June 2017 along with the consolidated statement of financial position at statement ended 30 June 2017 along with the consolidated the year of changes in equity for materially are companies the above by represented and the extended closed group group the closed 30 June 2017 for the same as that of the Group. The consolidated income statement, consolidated stat consolidated statement, income consolidated The (a) statemen consolidated statement, income Consolidated Group entities Group Pty Limited Pilbara • FMG Metals• Chichester Pty Limited 2006) Pty Limited (August Resources • FMG Pty• International Bulk Ports Limited Infrastructure Pty Pilbara The Limited • Solomon Pty• FMG Limited Audit and other assurance services and other assurance Audit certain and Limited parties under which each Metals guarantee Group of its subsidiaries are Fortescue a deed of cross to By entering of the others. the debts guarantees company report Corporation by Instrument 2016/785 issued under report a financial and Directors’ prepare to the requirement from Commission. Securities and Investments the Australian Holding entity Limited Metals Group • Fortescue Deed of cross guarantee Deed of cross Audit and review of financial statements and review Audit Other services assurance 46 63 Total audit and assurance services audit and assurance Total Other services servicesConsulting Australia of PricewaterhouseCoopers remuneration Total Australia PricewaterhouseCoopers firms of Network services and other assurance Audit 1,251 950 1,129 756 PricewaterhouseCoopers Australia PricewaterhouseCoopers financial statements of and review Audit Other services assurance 791 722 Total auditor's remunerationTotal 1,314 996 Remuneration of auditors Remuneration For the year ended 30 June 2017 ended 30 the year For Notes to the consolidated financial statements statements financial consolidated to the Notes 20 19 Notes to the consolidated financial statements I Other information For the year ended 30 June 2017

21 Parent entity financial information

(a) Summary financial information 2017 2016 US$m US$m

Current assets 158 101 Non-current assets 10,161 10,273 Total assets 10,319 10,374

Current liabilities 759 325 Non-current liabilities 43 85 Total liabilities 802 410 Net assets 9,517 9,964

Contributed equity 1,289 1,301 Reserves 22 14 Retained earnings 8,206 8,649 Total equity 9,517 9,964

Profit for the year 319 601 Total comprehensive income for the year 319 601

The parent entity’s financial information has been prepared using the same basis, including the accounting policies, as the consolidated financial information, except as outlined below:

• Investments in subsidiaries, associates and joint operations have been accounted for at cost; and • Profit for the year includes dividends received from subsidiaries of US$410 million (2016: US$500 million).

(b) Guarantees entered into by the parent entity

The parent entity is a party to the following guarantees:

• Deed of cross guarantee, as described in note 20; and • Guarantees forming part of Fortescue’s senior debt arrangements associated with the senior secured notes and the senior unsecured notes. The senior secured notes include providing security to the secured debt holders with respect to the assets of the Company and certain of its subsidiaries, as described in note 9(a).

No liability was recognised by the parent entity or the Group in relation to these guarantees.

(c) Contingent liabilities of the parent entity

The parent entity did not have any contingent liabilities at 30 June 2017 or 30 June 2016.

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ions. US$ 2016 2016 re. %

2017 ANNUAL REPORT

I

N/A 25 Investment 2017 US$ 2017 Participating interest interest Participating % 2016 FORTESCUE METALS GROUP LIMITED METALS FORTESCUE

1 Equity holding % Other information

2017 I Development of magnetite of magnetite Development assets and production of concentratemagnetite 69 69 Iron ore mining and Iron ore processing activitiesPrincipal PtyLtd exploration Iron ore 69 69 dinary 100 - 64,837,148 - dinary 88 88 43,557,023 43,557,023 Class of shares assets, liabilities and results of the following significant subsidiaries, significant of the following liabilities and results assets, ustralia Ordinary 100 100 1 1 Holding entity Country of Country incorporation Hong Kong Or Hong Kong Or Country of Country incorporation Glacier Valley Glacier Valley VentureJoint Australia North FMG Pilbara Iron Bridge Iron VentureJoint Australia Pty Magnetite Ltd FMG Nullagine Iron Ore Iron Ore Nullagine VentureJoint Australia Pty Pilbara Ltd FMG Joint Joint operations During the year ended 30 June 2017, Fortescue acquired the remaining 75 per cent interest in the Nullagine Iron Ore Joint Ventu Joint Iron Ore in the Nullagine interest 75 per cent the remaining acquired ended 30 June 2017, Fortescue During the year suspended pending market condit were Venture Joint Iron Ore ended 30 June 2016, the operations of the Nullagine During the year FMG Magnetite Pty Magnetite LtdFMG North PtyFMG Pilbara Ltd Pty Pilbara LtdFMG Services Procurement FMG 2006) Pty Ltd (August Resources FMG Australia Australia Solomon PtyFMG Ltd A Ordinary OrdinaryKarribi Pty Developments Ltd Australia Housing Services Pty LtdPilbara Australia 88 Ordinary 88 Pty Ltd Power Pilbara Ordinary Australia Infrastructure Pty Pilbara The Ltd Australia 100 Australia Kong Shipping Ltd Hong FMG Ordinary 100 Ordinary 88 Australia 88 Ordinary 100 100 Ordinary 100 Australia 100 100 Ordinary 100 100 1 100 1 100 100 1 100 1 1 1 1 100 1 1 1 1 1 1 1 1 1 1 1 1 (b) Joint operations Joint (b) following results of the liabilities and in the assets, share Fortescue’s incorporate financial statements consolidated The policy with the accounting 23(a)(ii): described in note in accordance principal joint operations, Chichester MetalsChichester Pty Ltd International Pte LtdFMG International Shipping Pte LtdFMG Singapore Iron Bridge Ltd FMG Australia Singapore Ordinary Ordinary Ordinary 100 100 100 100 100 100 209,053 1 1 209,053 1 1 (a) Subsidiaries the incorporate financial statements consolidated The in accordance with the accounting policy accounting 23(a)(i): with the described in note in accordance Controlled entities Controlled Interests in other entities in other Interests For the year ended 30 June 2017 ended 30 the year For Notes to the consolidated financial statements statements financial consolidated to the Notes 22 Notes to the consolidated financial statements I Other information For the year ended 30 June 2017

23 Summary of significant accounting policies

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below.

(a) Principles of consolidation

(i) Subsidiaries To support operations and construction projects of some of the joint operations, Fortescue and other The consolidated financial statements incorporate parties to the joint arrangements are required, from the financial statements of the Company and its time to time, to contribute funds in the form of cash subsidiaries, being the entities controlled by the calls, in proportion to their respective interests in Company. Control exists when the Group is exposed the joint arrangements. These funds, if contributed to, or has right to, variable returns from its involvement by the parties to the joint arrangements in different with the entity and has the ability to affect those returns financial years, may give rise to deferred joint venture through its power to direct the activities of the entity. contribution assets or liabilities.

The financial statements of subsidiaries are prepared Joint ventures for the same reporting period as the Company, using consistent accounting policies. All intercompany If the contractual arrangement grants the parties the balances and transactions, including unrealised profits right to the arrangement’s net assets, it is classified as a and losses arising from intra-group transactions, have joint venture. Interests in joint ventures are accounted been eliminated in full. Subsidiaries are consolidated for using the equity method, after initially being from the effective date of acquisition to the effective recognised at cost in the consolidated balance sheet. date of disposal. (b) Employee share trust The acquisition method of accounting is used to account for the Group’s business combinations. The Group has formed a trust to administer its employee share schemes. The trust is consolidated as Non-controlling interests in the results and equity of the substance of the relationship is that the trust is subsidiaries are shown separately in the consolidated controlled by the Group. Shares held by the share trust income statement, the consolidated statement of are disclosed as treasury shares and deducted from comprehensive income, consolidated statement of contributed equity. changes in equity and consolidated statement of financial position respectively. (c) Foreign currency translation

(ii) Joint arrangements Transactions in foreign currencies have been converted at rates of exchange at the date of those transactions. A joint arrangement is an arrangement when two Monetary assets and liabilities denominated in foreign or more parties have joint control. Joint control exists currencies are translated at the rates of exchange of when the parties agree contractually to share control the reporting date, with the resulting gains and losses over the activities that significantly affect the entity’s recognised in the income statement, except as set out returns (relevant activities), and the decisions about below: relevant activities require the unanimous consent of the parties sharing joint control. • For qualifying cash flow hedges, the gains and losses arising on foreign currency translations are deferred Joint arrangements are classified as either joint in other comprehensive income operations or joint ventures, based on the contractual rights and obligations between the parties to the • Translation differences on site rehabilitation arrangement. provisions are capitalised as part of the development assets. Joint operations Gains and losses on assets and liabilities carried at fair If the contractual arrangement specifies a right to value are reported as part of the fair value gain or loss. the assets and the obligations for the liabilities for the parties, the arrangement is classified as a joint (d) Revenue recognition operation. The Group recognises its direct right to the assets, liabilities, revenues and expenses of joint Revenue is measured at the fair value of the operations and its share of any jointly held or incurred consideration received or receivable. Fortescue assets, liabilities, revenues and expenses. These recognises revenue when the amount of revenue can have been incorporated in the financial statements be reliably measured and it is probable that future under the appropriate headings. Details of the joint economic benefits will flow to the entity and specific operations are set out in note 22. criteria have been met for each of the Group’s activities as described on the following page.

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2017 ANNUAL REPORT

I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Other information

I is uncertain, established based on is a provision at understanding of applicable tax law the Group’s in result Settlement may matters of these the time. tax if the income and deferred current changes to the provision. from settlement differs arising temporary on liability method, differences and their the tax bases of assets and liabilities between tax is income the deferred carrying However, amounts. the initial recognition if it arises from for not accounted of an asset or liability in a transaction, other than that at the time of the a business combination, transaction nor taxable affects neither the accounting is determined tax income Deferred or loss. profit been enacted or that have and laws using tax rates substantially enacted the reporting by and are date income deferred expected related apply when the to tax liability income or the deferred tax asset is realised is settled. and carrytemporaryforwardof unused tax differences taxable amounts that future losses only if it is probable utilise those temporary to will be available differences at each reviewed assets are tax Deferred and losses. the extent to that it is reporting reduced and are date tax benefit will be that the related no longer probable realised. tax assets and liabilities current offset is a legal right to the same to relate tax balances and when the deferred tax assets and tax liabilities Current taxation authority. has a legally enforceable the Group where offset are to settle on a net either and intends offset right to the asset and settle the liability realise or to basis, simultaneously. legislation the tax consolidation implemented have tax consolidated at 1 July 2002, namely the FMG as a single entity taxed therefore and are group, Pty and Ltd Iron Bridge (Aust) FMG that date. from entities have its wholly-owned controlled Australian as at legislation the tax consolidation implemented Bridge tax Iron 2011, namely the FMG 28 September as a single taxed therefore and are group, consolidated entity that date. from their own for account to continue groups consolidated tax amounts These tax amounts. and deferred current as if each entity in each tax consolidated measured are in its own be a standalone taxpayer to continues group tax and deferred current right. In its own addition to also recognises the head entity of each group amounts, and the deferred or assets, tax liabilities, the current unused tax losses and tax assets it has assumed from entities in each controlled from unused tax credits group. tax consolidated corresponding or recoverable the amount of tax payable Where using the in full, tax is provided income Deferred deductible future for recognised tax assets are Deferred when there offset tax assets and liabilities are Deferred entities and its wholly-owned Australian Fortescue entities in both tax head entityThe and the controlled when title passes to the customer, typically on the customer, when title passes to on the current year’s taxable income based on the based on the taxable income year’s on the current each jurisdiction. for Income tax rate applicable income comprises for the period or loss tax on the profit tax. and deferred current enacted enacted at or substantively the taxation laws the end of the reporting where period in the countries and generate subsidiaries operate the Company’s the tax represents income Current taxable income. the for on the taxable income expected tax payable in respect to tax payable adjustments to and any year years. previous not earned at the end of the reporting period. These These not earned at the end of the reporting period. when the goods as revenue recognised are payments or services provided. are delivered are in the accounting period in which the servicesin the accounting are rendered. method. rate persuasive evidence exists, usually in the form of an usually in the form exists, evidence persuasive has there indicating that sales agreement, executed to of ownership of risks and rewards been a transfer is required no further processing or work the customer, the quantity and quality the products of the Group, by the accuracy, with reasonable determined been have and collectability estimated is can be reasonably price assured. reasonably satisfied the vessel. to is delivered when ore the bill of lading date is recognised ore sales of iron from revenue Accordingly, amount. invoiced at an on the bill of lading date as the to is referred invoice included in the original to and is subsequently adjusted price provisional a quotation period stipulated over reflect market prices in the sales contract, typically on or after the vessel’s 11(a)(i) for note to the port Refer arrival to of discharge. contracts, priced further on provisionally information market adjustments. mark to for including accounting (f) Income tax (f) Income is the tax payable the year tax expense for income The on the basis of is calculated tax charge income Current (e) Deferred income (e) Deferred collected but payments represents income Deferred (ii) Services revenue (ii) Services Revenue of services the provision is recognised from income (iii) Interest interest using the effective is accrued income Interest (d) (continued) recognition Revenue (i) Sale of products when of products the sale is recognised from Revenue generally are conditions the above sales, ore iron For contracts the sale price the majority of Fortescue’s For Summary of significant accounting policies (continued) policies Summary accounting significant of For the year ended 30 June 2017 ended 30 the year For Notes to the consolidated financial statements statements financial consolidated to the Notes 23 Notes to the consolidated financial statements I Other information For the year ended 30 June 2017

23 Summary of significant accounting policies (continued)

(g) Cash and cash equivalents Iron ore stockpiles represent iron ore that has been Cash and cash equivalents include cash on hand, extracted and is available for further processing or short term deposits and other short-term highly liquid sale. Quantities are assessed primarily through internal investments that are subject to an insignificant risk of and third party surveys. Where there is an indication changes in value, and are readily convertible to known that inventories are obsolete or damaged, these amounts of cash. inventories are written down to net realisable value. Net realisable value is the estimated selling price in the (h) Trade receivables ordinary course of business less the estimated costs of completion and the estimated costs necessary to make Trade and other receivables are recognised initially at the sale. fair value and subsequently measured at amortised cost using the effective interest method, less provision (j) Financial assets for impairment. Fortescue classifies its financial assets into loans and Collectibility of trade receivables is reviewed on a receivables and financial assets at fair value through monthly basis. When there is objective evidence that profit or loss. The classification depends on the Fortescue will not be able to collect all amounts due purpose for which the financial assets were acquired. according to the original terms of the receivables, an Management determines the classification of its allowance for impairment of trade receivables is raised. financial assets at initial recognition. Total receivables which are known to be uncollectible are written off by reducing the carrying amount (i) Loans and receivables directly. Significant financial difficulties of the customer, probability that the customer will enter bankruptcy or Loans and receivables are non-derivative financial financial re-organisation and default or delinquency assets with fixed or determinable payments that are in payments are considered indicators that the trade not quoted in an active market and include trade receivable may not be collected. The amount of the receivables. They are included in current assets, except impairment allowance is the difference between the for those with maturities greater than 12 months after trade receivable’s carrying amount and the present the reporting date which are classified as non-current value of estimated future cash flows, discounted at the assets. Loans and receivables are initially measured original effective interest rate. Cash flows relating to at fair value and subsequently carried at amortised short term receivables are not discounted if the effect cost. At the end of each reporting period loans and of discounting is immaterial. receivables are reviewed for impairment, with the difference between the carrying amount and the The amount of the impairment allowance is recognised present value of estimated future cash flows recognised in the income statement within administration in the income statement. expenses. When a trade receivable for which an impairment allowance had been recognised becomes (ii) Financial assets through profit or loss uncollectible in a subsequent period, it is written off This category comprises only derivative financial against the allowance account. Subsequent recoveries instruments. They are carried in the balance sheet at fair of amounts previously written off are credited against value with changes in fair value recognised in profit or loss. other administration expenses. (k) Financial liabilities (i) Inventories (i) Trade payables Warehouse stores and materials, work in progress and finished goods are stated at the lower of cost and net Trade and other payables are initially recognised at fair realisable value. Cost for raw materials and stores is value and subsequently carried at amortised cost and determined as the purchase price. For partly processed represent liabilities for goods and services provided to and saleable iron ore, cost is based on the weighted the Group prior to the end of the financial year that are average cost method and includes: unpaid.

• Materials and production costs, directly attributable (ii) Borrowings to the extraction, processing and transportation of iron ore to the existing location Borrowings are initially recognised at fair value of the consideration received, less directly attributable • Production and transportation overheads transaction costs. After initial recognition, borrowings are subsequently measured at amortised cost using the • Depreciation of property, plant and equipment effective interest method. used in the extraction, processing and transportation of iron ore. Borrowings are derecognised when the contractual obligations are discharged, cancelled or expire, or when the terms of an existing borrowing are substantially modified. Any difference between the carrying amount of a derecognised liability and the carrying amount of the new liability is recognised in the income statement.

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I iron ore produced, assets are generally depreciated on generally depreciated assets are produced, ore iron the for lives useful estimated The a straight-line basis. equipment plant and of property, principal categories as follows: basis are on a straight-line depreciated at the end of each reviewed method are depreciation reporting changes in of any period with the effect basis. on a prospective for accounted estimate the asset is a mine, the extraction from ore of iron The the units of production using method. depreciated units of production method is an amortised charge proportional proven of the estimated the depletion to reserves at the mines. and probable carrying amount or recognised as a separate asset, carrying separate as a or recognised amount that future only when it is probable as appropriate, with these subsequent benefits associated economic Fortescue cost of the item and the to will flow costs and repairs Ongoing reliably. can be measured as an expense in the recognised are maintenance which during the financial period in statement income incurred. they are using the straight-line method is calculated depreciated, values, net of residual or units of production method, commences Depreciation useful lives. estimated over that is, use, for is available when an asset on the date necessarywhen it is in the location and condition it for by be capable of operating in the manner intended to leases are under finance acquired management. Assets the shorter over of the individual asset’s depreciated and the lease term. useful life Straight-line method Straight-line of the quantities is not linked to the useful life Where 40 years 20 to • Buildings 30 years 25 to stock • Rolling 20 years • Plant and equipment 2 to • Rail and port 50 years. infrastructure assets 40 to values and residual useful lives, estimated The Units of production method of an asset is directly linked to the useful life Where (ii) Subsequent costs (ii) Subsequent included in the asset’s are Subsequent costs (iii) Depreciation other than land which is not of assets, Depreciation at historical cost less, where applicable, any any applicable, where less, cost at historical and impairment loss. depreciation accumulated that is directly includes expenditure Historical cost of the assets. the acquisition attributable to other costs and direct labour and any of materials a an asset to bringing directly attributable to Assets use. its intended for working ready condition in assets under recognised under construction are which is the Upon commissioning, development. location and condition when the asset is in the date necessary be capable of operating in the it to for the assets are management, by manner intended or plant and equipment property, into transferred as appropriate. assets, development foreign hedges of gain or loss on qualifying cash flow plant and equipment. of property, currency purchases or the acquisition to related costs Borrowing capitalised. construction of qualifying assets are they are useful lives, different and equipment have plant and of property, items as separate for accounted the to software that is integral equipment. Purchased functionality equipment is capitalised as of the related part of the equipment. in the income recognised plant and equipment are proceeds comparing by and determined statement their carrying the sale of the assets to from amount. to certain items of property, plant and equipment. plant and equipment. certainto of property, items at initially recognised liabilities are lease Finance if lower, assets or, the fair value of the underlying value of the minimum lease present the estimated between is allocated Each lease payment payments. cost is finance cost and the the liability and finance the lease period over statement the income to charged on the of interest constant periodic rate reflect a to each period. of the liability balance for remaining (l) and equipment plant Property, (i) and measurement Recognition plant and equipment is stated Each class of property, of self-constructed cost The assets includes the cost equity of any from also include transfers may Cost parts plant When separate of property, of an item Gains and losses arising on disposal of property, (k) liabilities (continued) Financial (iii) lease liabilities Finance relation lease liabilities in has finance Group The Summary of significant accounting policies (continued) policies Summary accounting significant of For the year ended 30 June 2017 ended 30 the year For Notes to the consolidated financial statements statements financial consolidated to the Notes 23 Notes to the consolidated financial statements I Other information For the year ended 30 June 2017

23 Summary of significant accounting policies (continued)

(l) Property, plant and equipment (continued)

(iv) Exploration, evaluation and development expenditure Development costs are accumulated in respect of each separate area of interest. Costs associated with Exploration and evaluation activities involve the search commissioning new assets in the period before they for mineral resources, the determination of technical are capable of operating in the manner intended by feasibility and the assessment of commercial viability management, are capitalised. Development costs of an identified resource. Exploration and evaluation incurred after the commencement of production are expenditure incurred is accumulated and capitalised in capitalised to the extent they are expected to give rise respect of each identifiable area of interest, and carried to a future economic benefit. forward to the extent that: When an area of interest is abandoned or the Directors • Rights to tenure of the identifiable area of interest are decide that it is not commercially or technically feasible, current; and any accumulated cost in respect of that area is written • At least one of the following conditions is also met: off in the financial period that the decision is made. Each area of interest is reviewed at the end of each (i) The expenditure is expected to be recouped accounting period and the accumulated costs written through the successful development of the off to the income statement to the extent that they will identifiable area of interest, alternatively by its not be recoverable in the future. sale; or Amortisation of development costs capitalised is (ii) Where activities in the identifiable area of charged on a unit of production basis over the life of interest have not, at the reporting date, reached estimated proven and probable reserves at the mines. a stage that permits a reasonable assessment of the existence or otherwise of economically (m) Stripping costs recoverable reserves and activities in, or in relation to, the area of interest, are continuing. (i) Development stripping costs Overburden and other mine waste materials are often Exploration and evaluation assets are reviewed at removed during the initial development of a mine each reporting date for indicators of impairment and in order to access the mineral deposit. This activity is tested for impairment where such indicators exist. If referred to as development stripping and the directly the test indicates that the carrying value might not be attributable costs, inclusive of an allocation of relevant recoverable, the asset is written down to its recoverable overhead expenditure, are capitalised as development amount. These charges are recognised within costs. Capitalisation of development stripping costs exploration, development and other expenses in the ceases and amortisation of those capitalised costs income statement. commences upon commercial extraction of ore. Amortisation of capitalised development stripping Where an impairment loss subsequently reverses, the costs is determined on a unit of production basis for carrying amount of the asset is increased to the revised each area of interest. estimate of its recoverable amount, but only to the extent that the increased carrying amount does not Development stripping costs are considered in exceed the carrying amount that would have been combination with other assets of an operation for the determined had no impairment loss been recognised purpose of undertaking impairment assessments. for the asset in previous years. (ii) Production stripping costs Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of Overburden and other mine waste materials continue interest are demonstrable, exploration and evaluation to be removed throughout the production phase of the assets attributable to that area of interest are first tested mine. This activity is referred to as production stripping, for impairment and then reclassified from exploration with the associated costs charged to the income and evaluation expenditure to development statement, as operating cost, except when all three expenditure. criteria below are met:

Development expenditure includes capitalised • Production stripping activity provides improved exploration and evaluation costs, pre-production access to the specific component of the ore body, development costs, development studies and other and it is probable that economic benefit arising from expenditure pertaining to that area of interest. Costs the improved access will be realised in future periods related to surface plant and equipment and any associated land and buildings are accounted for as • The Group can identify the component of the ore property, plant and equipment. body for which access has been improved • The costs relating to the production stripping activity associated with that component can be measured reliably.

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I re-measured to account for any new disturbance, new disturbance, any for re-measured account to to the inflation, changes estimates, cost updated new of operations, reservesestimated and lives policies and environmental regulatory requirements, the rehabilitation Changes to rates. discount revised the related deducted or added to liability from are asset and amortisedrehabilitation accordingly. are initially recognised, the corresponding cost cost the corresponding initially recognised, are of mine development the cost is capitalised into part of acquiring representing of the cost assets, The benefits of the operation. economic the future activities and rehabilitation of closure capitalised cost assets and is within development is recognised amortisedbased on the units of production method value of the provision The of the mine. the life over time as the effect of over increased is progressively an expense recognised creating unwinds, discounting costs. in finance the expected value of future cash flows required required cash flows the expected value of future their to discounted site, the relevant rehabilitate to bond Government using Australian value present the as closely as possible, market yields that match, The cash outflows. future timing of the estimated the estimation applied for judgements and estimates in discussed are provisions of the rehabilitation 24. note obtained from the sale of the asset in an arm’s length the sale of the asset in an arm’s obtained from transaction knowledgeable between and willing mineral assets is generally value for parties. Fair using independent market assumptions determined future value of the estimated the present calculate to continued use the expectedto arise from cash flows and expansion prospects, of the asset, including any discounted are cash flows These disposal. its eventual at a net arrive to rate discount using an appropriate value of the asset. present events or changes in circumstances indicate that indicate or changes in circumstances events the carrying not be recoverable. amount may of asset conducts review an internal Group The which is used as a values at each reporting date, indications any assess for to of information source of impairment. External such as changes factors, and other market costs prices, in expected future indications of assess for to also monitored factors are an estimate such indication exists, impairment. If any being amount is calculated, recoverable of the asset’s sell and the to the higher of fair value less direct costs An impairment loss is recognised value in use. asset’s carrying amount which the asset’s the amount by for amount. its recoverable exceeds liability each reporting is the rehabilitation At date and rehabilitation closure for When provisions at initially measured are Rehabilitation provisions be as the amount that would value is determined Fair (p) (p) assets of non-financial Impairment impairment whenever for reviewed are Assets present legal or constructive obligation as a result of obligation as a result legal or constructive present likely than not that an outflow it is more past events, settle the obligation to will be required of resources estimated. and the amount can be reliably site obligations for to rise give of Fortescue Rehabilitation obligations include rehabilitation. or treatment removal of facilities, decommissioning and site land rehabilitation materials, of waste and the required extentThe of work restoration. using current estimated are costs associated Provisions and techniques. standards restoration program of each rehabilitation the cost for at the time that environmental recognised are occurs. disturbance substantially all the risks and rewards of ownership, of ownership, substantially all the risks and rewards acquired Assets leases. as finance classified are of capitalised at the lower leases are under finance present the fair value of the underlying assets or the The minimum lease payments. value of the future lease liability finance is classified as corresponding between is allocated Each lease payment borrowings. cost is The finance cost. the liability and finance the lease over statement the income to charged of periodic rate a constant produce period so as to of the liability balance for on the remaining interest each period. Fortescue to not transferred are of ownership rewards Payments leases. classified as operating as lessee are as an recognised made under operating leases are on a straight-line statement expense in the income the lease term. basis over stripping costs resulting in improved access to the to access in improved resulting stripping costs capitalised are body ore component of the identified as part amortised asset and are of development over body. ore of the of the component the life of costs allocation The each mine. is individual for productionbetween stripping activity and the is performed produced using relevant of ore costs Changes typically strip ratios. production measures, and economic technical the mine design, to and strip components of the affecting life parameters prospectively. for accounted are ratios, has a when Fortescue recognised are Provisions extraction activities mining, The and processing (o) Rehabilitation provision Rehabilitation (o) (n) Leases has as lessee, Fortescue, of assets where Leases portion in which a significant Leases of the risks and (m) Stripping costs (continued) costs Stripping (m) (ii) (continued) stripping costs Production production met, are criteria If all of the above body of the ore of components determination The Summary of significant accounting policies (continued) policies Summary accounting significant of For the year ended 30 June 2017 ended 30 the year For Notes to the consolidated financial statements statements financial consolidated to the Notes 23 Notes to the consolidated financial statements I Other information For the year ended 30 June 2017

23 Summary of significant accounting policies (continued)

(p) Impairment of non-financial assets (continued) (ii) Long service leave

Value in use is determined as the present value of the The liability for long service leave is recognised in estimated future cash flows expected to arise from the provisions and measured as the present value of continued use of the asset in its present form and its expected future payments to be made in respect of eventual disposal, discounted using a pre-tax discount services provided by employees up to the reporting rate that reflects current market assessments of the date. Consideration is given to expected future wage time value of money and the risks specific to the asset and salary levels, probability of employee departures for which the estimates of future cash flows have not and periods of service. been adjusted. Value in use is determined by applying assumptions specific to the Group’s continued use and Expected future payments are discounted using does not take into account future development. market yields at the reporting date on Australian Government bonds with terms to maturity and In testing for indications of impairment and performing currency that match, as closely as possible, the impairment calculations, assets are considered as estimated future cash outflows. The liability for long collective groups and referred to as cash generating service leave for which settlement within 12 months of units. Cash generating units are the smallest the reporting date cannot be deferred is recognised in identifiable groups of assets and liabilities that generate the current provision. The liability for long service leave cash inflows that are largely independent of the cash for which settlement can be deferred beyond inflows from other assets or groups of assets. 12 months from the reporting date is recognised in the non-current provision. Impaired assets are reviewed for possible reversal of the impairment at each reporting date. (s) Share-based payments

(q) Finance costs Share-based remuneration benefits are provided to employees under the Fortescue’s Performance Rights Finance costs principally represent interest expense and Plan, as set out in note 18. are recognised as incurred except when associated with major projects involving substantial development and The fair value of rights is measured at grant date construction periods. In addition, finance costs include and is recognised as an employee benefits expense losses arising on derecognition of finance liabilities at over the period during which the employees above their carrying value, unwinding of the discount become unconditionally entitled to the rights, with a on provisions and bank charges. corresponding increase in equity.

Interest expense and other borrowing costs directly The fair value at grant date is determined using attributable to major projects are added to the cost trinomial option pricing model that takes into account of the project assets until such time as the assets are the exercise price, the term of the right, the impact substantially ready for their intended use or sale. Where of dilution, the share price at grant date and expected funds are used to finance an asset form part of general price volatility of the underlying share, the effect of borrowings, the amount capitalised is calculated using additional market conditions, the expected dividend a weighted average of rates applicable to relevant yield and the risk free interest rate for the term of general borrowings during the construction period. the right.

Investment income earned on the temporary The fair value of the rights granted is measured to investment of specific borrowings pending their reflect expected market vesting conditions, but expenditure on qualifying assets is deducted from the excludes the impact of any non-market vesting borrowing costs eligible for capitalisation. conditions (for example, profitability). Non-market vesting conditions are included in assumptions about (r) Employee benefits the number of rights that are expected to become exercisable. At each reporting date, the entity revises (i) Wages and salaries and annual leave its estimate of the number of rights that are expected Liabilities for wages and salaries, including non- to become exercisable. The employee benefit expense monetary benefits and annual leave expected to be recognised each period takes into account the most settled within 12 months of the reporting date are recent estimate. The impact of the revision to original recognised in other payables and accruals in respect of estimates, if any, is recognised in the income statement employee services up to the reporting date. They are with a corresponding adjustment to equity. measured at the amounts expected to be paid when the liabilities are settled.

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I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Other information

Accounting Standards - Accounting for Acquisitions Acquisitions for - Accounting Standards Accounting in Joint Operations of Interests Acceptable of - Clarification Standards Accounting and AmortisationMethods of Depreciation to - Annual improvements Standards Accounting 2012 - 2014 cycle Standards Accounting Australian initiative: - Disclosure Standards Accounting AASB 101. Amendments to I any impact on the current period or any prior period impact period or any on the current any no are There periods. future affect and is not likely to and that effective not yet that are other standards impact a material on the be expected have to would reporting or future entity periods and in the current transactions. future on foreseeable standards are mandatory for the first time for the for the mandatory the first time are for standards 1 July 2016: beginning year financial Australian to AASB 2014-3 Amendments • Australian to AASB 2014-4 Amendments • Australian AASB 2015-1 Amendments to • Australian AASB 2015-2 Amendments to • adoption of these amendments did not have The (x) interpretations and standards accounting New (i) Group the adopted by New and amended standards to and amendments new standards following The adjusted to conform with current year presentation. year with current conform to adjusted net of the amount of associated GST, except where where except GST, net of the amount of associated is not recoverable the amount of GST incurred In these (ATO). Office Taxation the Australian from as part the GST is recognised of the circumstances of the asset or as part of acquisition cost of an item in the and payables Receivables of the expense. net The of GST. inclusive shown sheet are balance the to, or payable from, amount of GST recoverable asset or liability in the is included as a current ATO sheet. balance of the GST component for except basis, on a gross and financing activities, which is disclosed investing as an operating cash flow. profit for the year after income tax attributable year after income for the profit the weighted the ordinary by to shareholders number of ordinary on issue during shares average for the effects after adjusting year, the financial ordinary that were dilutive shares of all potential year. outstanding during the financial profit for the year after income tax attributable to tax attributable year after income for the profit average the weighted the ordinary by shareholders number of ordinary the on issue during shares year. financial declared, being appropriately authorised and no authorised being appropriately declared, on or before of the Company, longer at the discretion the end of the reporting at period but not distributed the end of the reporting period. (v) (GST) Tax Goods and Services (w) Comparatives been certain have applicable, comparatives Where recognised expenses and assets are Revenues, statement in the cash flow presented are flows Cash (ii) Diluted earnings per share dividing by is calculated earnings per share Diluted (u) per share Earnings (i) Basic earnings per share dividing by is calculated Basic earnings per share (t) Dividends dividend of any the amount is made for Provision Summary of significant accounting policies (continued) policies Summary accounting significant of For the year ended 30 June 2017 ended 30 the year For Notes to the consolidated financial statements statements financial consolidated to the Notes 23 Notes to the consolidated financial statements I Other information For the year ended 30 June 2017

23 Summary of significant accounting policies (continued)

(x) New accounting standards and interpretations AASB 16 Leases (effective for annual reporting (continued) periods beginning on or after 1 January 2019)

(ii) New accounting standards and interpretations not AASB 16 introduces new framework for accounting yet adopted for leases and will replace AASB 117 Leases. The new standard will primarily affect the accounting by lessees Certain new accounting standards and interpretations and will result in the recognition of almost all leases on have been published that are not mandatory for 30 the balance sheet. The standard removes the current June 2017 reporting periods. These standards and distinction between operating and financing leases and interpretations have not been early adopted. requires recognition of an asset (the right to use the leased item) and a financial liability to pay rentals for AASB 9 Financial Instruments (effective for annual almost all lease contracts. reporting periods beginning on or after 1 January 2018) As at 30 June 2017, Fortescue has non-cancellable operating leases in relation to office rentals, vehicles AASB 9 addresses the classification, measurement and and vessels. Management is continuing to determine derecognition of financial assets and financial liabilities the extent that these operating leases will be and introduces new rules for hedge accounting. recognised as assets and liabilities on the Company’s statement of financial position, the impact on profit The new standard also introduces expanded disclosure and classification of the related cash flows. Some of requirements and changes in presentation. These the operating leases in existence at the reporting date are expected to change the nature and extent of the will be exempt on the basis of being short-term or low Group’s disclosures about its financial instruments value, some relate to arrangements that will not qualify particularly in the year of the adoption of the new as leases under the new standard and some will be standard. subject to renewal prior to the implementation. Fortescue has determined that AASB 9 will have no material impact on the way the Group accounts for its financial instruments.

AASB 15 Revenue from Contracts with Customers (effective for annual reporting periods beginning on or after 1 January 2018)

AASB 15 Revenue from Contracts with Customers (effective for annual reporting periods beginning on or after 1 January 2018). AASB 15 introduces new framework for accounting for revenue and will replace AASB 118 Revenue and AASB 111 Construction Contracts. The new standard is based on the principle that revenue is recognised when control over goods and services transfers to a customer, therefore the notion of control replaces the existing notion of risks and rewards.

Fortescue sells a significant proportion of its products on CFR terms which requires the Group to be responsible for providing shipping services after the date at which control of the goods passes to the customer at the port of loading. AASB 15 requires the individual components of revenue to be recognised separately and freight revenue is likely to be deferred until the product is delivered rather than when the product is shipped. No other areas are expected to be significantly impacted.

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I recoverable amount recoverable about make estimates management to requires commodity expected production and sales volumes, in reserve estimates’ ore ‘iron reserves (see prices, and costs rehabilitation 24(a)), operating costs, note Changes in circumstances capital expenditure. future impact which may these projections, alter may In such amount of the assets. the recoverable some or all of the carrying value of the circumstances, and the impairment would be impaired assets may statement. the income to be charged significant requires provisions of rehabilitation of possible works including the magnitude estimates of infrastructure and of the removal for required of performing cost future the works, rehabilitation and the timing rates work, the inflation and discount These uncertaintiesresult in may of cash flows. the amounts from actual differing future expenditure provided. currently evaluation expenditure results in expenditure in expenditure results evaluation expenditure it where of interest an area being capitalised for future by be recoverable likely to is considered the activitieswhere exploitation or sale or have a stage which permits a reasonable not reached policyThis of reserves. assessment of the existence certain make management to estimates requires in particular and circumstances, events future as to viable extractionwhether an economically estimates such Any operation can be established. change as new information and assumptions may the capitalised after having If, available. becomes a judgement is made under the policy, expenditure the is unlikely, of the expenditure that recovery to the off capitalised amount will be written relevant statement. income of the projectviability is feasibility and technical management Judgement is applied by established. viable when a project is commercially in determining this judgement, In exercising feasible. and technically make certain to estimates management is required after If, events. future the and assumptions as to a activity, the development commenced having asset is judgement is made that a development capitalised amount will be the relevant impaired, and loss. profit to off written (d) Property, plant and equipment – (d) and equipment plant Property, of fair value and value in use determination The estimates (e) Rehabilitation policy the recognition accounting for Fortescue’s (b) (b) expenditure and evaluation Exploration policy and exploration accounting for Fortescue’s expenditure (c) Development activities after commercial Development commence changes in estimated future cash flows future changes in estimated such charges change where may statement income the units of production method, by determined are of assets change lives the useful economic or where change due to changes in estimates of the likely changes in estimates change due to of tax benefits. recovery of product that can be economically and legally of product that can be economically mining tenements. current extracted Fortescue’s from estimates reserves, ore calculate In to order about a range of required and assumptions are including factors, and economic technical geological, recovery production techniques, grades, quantities, transport commodity production costs, costs, rates, rates. and exchange commodity prices demand, reserves of ore Estimating the quantitygrade and bodies or shape and depth of ore the size, requires data geological by analysing to be determined fields and complex requires This such as drilling samples. to and calculations judgements difficult geological the data. interpret data is reserves change and as additional geological estimates of operations, during the course generated Changes varyof reserves may period. period to from financial Fortescue’s in reported affect reserves may and financial position in a number of ways, results including the following: (a) estimates reserve ore Iron of the amount estimates reserves are Iron ore estimate assumptions used to economic As carryingto Asset due be affected values may • and amortisationDepreciation in the charges • carrying tax assets may The value of deferred • The preparation of the consolidated financial statements financial statements of the consolidated preparation The and estimates make judgements management to requires certain affect how assumptions that assets, and form reported. and equity expenses are revenue, liabilities, its each reporting management evaluates At period, experience based on historical judgements and estimates under be reasonable to and on other factorsbelieves it the basis of form of which the results the circumstances, the carrying not of assets and liabilities that are values may Actual results other sources. from apparent readily assumptions under different estimates these from differ and conditions. critical accounting following has identified the Fortescue judgements and estimates significant policies where of these in the preparation management made by are financial statements. Critical accounting estimates and judgements estimates accounting Critical For the year ended 30 June 2017 ended 30 the year For Notes to the consolidated financial statements statements financial consolidated to the Notes 24 Fortescue’s Values

Safety Empowerment Family Frugality Stretch targets Look out for our mates Take action and Care for your Use your brain not Deliver against and ourselves encourage your team work mates your cheque book challenging targets

Courage and Integrity Enthusiasm determination Generating ideas Humility Do what you say Always be on the Show vulnerability Be positive, energetic Never, ever give up you’re going to do lookout for better ways in leadership

Fortescue’s Vision The safest, lowest cost, most profitable iron ore producer

Realising this Vision is at the heart of everything the Company does. Supporting this Vision are unique Values which drive the Company’s performance in a way that sets Fortescue apart.

100 FORTESCUE METALS GROUP LIMITED REMUNERATION REPORT

The year in review

FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 101 Remuneration and Nomination Committee Chair Sharon Warburton

On behalf of the Directors of Fortescue Metals Group Limited I am pleased to present the Remuneration and Nomination Report for the year ended 30 June 2017.

Improved Consistent Reduced Safety Production Cost 33% 1% 17 %

Total Recordable US$ 2.9 Injury Frequency Rate 170.4 mt 12.82 /wmt

Culture 92% participation in Safety Excellence and Culture Survey

During FY17, the Company has achieved outstanding FY17 Performance results. Shareholders continued to benefit from the excellent The share price increased 49 per cent from the FY16 closing and world leading performance being delivered by our price of A$3.50 to A$5.22 at the end of FY17. Executives and all of their teams in safety, production and operating cost improvement. During FY17, Fortescue achieved exceptional results against all of its stretch targets, specifically: Now recognised as the lowest cost provider of seaborne iron • Outstanding financial performanceincluding: ore to China, the outcomes delivered by Fortescue across all key measures underpin the US$2,093 million net profit • 92 per cent increase in Return on Equity achieved, an 112 per cent increase over FY16. • 112 per cent increase in Net Profit from US$985m to US$2,093m Culture driving remuneration strategy • 48 per cent increase in EBITDA from US$3,195m Fortescue’s remuneration strategy is underpinned by its to US$4,744m strong performance culture of setting stretch targets, striving to achieve them and rewarding success. Short and long-term • 20 per cent increase in revenue from iron ore incentive targets are set at challenging levels designed to operations from US$6,947m to US$8,335m drive innovation, continual value creation and long-term • Consistent production from the Company’s world business sustainability and growth. The Board exercises its class assets, with 170.4mt of iron ore shipped discretion to recognise outstanding levels of achievement, including where Fortescue’s challenging stretch targets may • Substantial cost reductions including a 17 per cent have been missed by a very small margin, yet are market reduction in C1 costs and a June 2017 monthly cost leading against global peers. of production of less than US$10/wmt with Fortescue now the lowest cost provider of seaborne The Company’s values-driven culture continues to deliver iron ore to China. high levels of engagement demonstrated by the annual safety • Significant improvement in safety performance and culture survey with substantial improvement across all across all sites, a 33 per cent reduction in TRIFR. key survey metrics. Diversity is recognised as a fundamental driver of business success. • Mine life maintained at target production rate and quality. The Fortescue culture is unique, powerful and drives success.

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I Reference: Metalytics Reference: Sector Economics Resource 2017 March analysis, FORTESCUE METALS GROUP LIMITED METALS FORTESCUE

Notwithstanding strong Company performance over performance over Company Notwithstanding strong performance the ability achieve to year period, the three has performance of the FY15 LTIP target the required This anomaly price. ore the iron by influenced been heavily highlights the inadequacy performance of a single measure has price ore non-controllable the iron where the Company for FY16 and FY17 The impact value. a material on shareholder open. performance periods remain LTIP LTIP. of the single measure year is the last vesting This performance next long term be assessed will year From of remuneration alignment ensure to measures using three all parts cyclical throughout market. ore strategies of the iron with clear you Our report provide to is designed that remuneration ensure to on our strategy information the deliver to is aligned and Directors Executives paid to our shareholder. you, to best outcomes be the its vision to towards work to continues Fortescue producer. ore iron most profitable cost, lowest safest, world’s Sharon Warburton Sharon Chair Committee and Nomination Remuneration no annual salary in FY17 increase While the target. only on the cost used discretion with Board just short they fell of class, world reductions were cost team’s set 12 months ago target C1 stretch the defined aggressive period. As the minimum Absolute Return on Equity the minimum Absolute (AROE) As period. was not met, none ofperformance of 20 per cent threshold will vest. Plan (LTIP) Incentive Term the FY15 Long component for the Executive and Senior Staff Incentive the Executive for component annual reduction Plan (ESSIP) on the basis of a 17 per cent Board The is an outstanding achievement. This in C1 costs. of Fortescue also acknowledged recognition the milestone ore of seaborne iron provider cost the lowest becoming 2016, a position that has been China in November to of production for of FY17. A cost the balance maintained for the month of June 2017 of

1 FY17 overview and year ahead 6 How executive remuneration is reported 1.1 FY17 Remuneration outcomes – linking performance to pay 106 6.1. Actual remuneration paid in FY17 124 6.2. Statutory remuneration disclosure 2 Remuneration governance for executives 125 6.3. Details of performance grants 2.1. The Remuneration and Nomination Committee 108 to executive directors 127 2.2. Use of remuneration consultants 109 6.4. Details of share based payments relating to LTIP 127 2.3. Clawback policy 109 2.4. Securities Trading policy 109 7 Executive contract terms 128 2.5. Minimum shareholding and holding conditions 109

8 Non-Executive director remuneration 3 Executive remuneration strategy 8.1. NED remuneration policy 129 3.1. Remuneration policy 110 8.2. NED fee pool 129 3.2. How remuneration practices align with Fortescue’s reward strategy 110 9 Equity instrument disclosures relating 4 Executive remuneration structure to key management personnel

4.1 Remuneration mix 111 9.1. Options and Share Rights 131 9.2. Share holdings (ordinary shares) 132 5 Incentive plan operation and performance outcomes

5.1. Executive and Senior Staff Incentive Plan (ESSIP) 112 5.2. How ESSIP objectives and weightings are determined 112 5.3. How the ESSIP works: a general example 114 5.4. How Fortescue performed over the past five years 114 5.5. FY17 ESSIP performance outcomes 115 5.6. FY17 ESSIP awards 117 5.7. Long Term Incentive Plan (LTIP) 118 5.7.1. FY15 Long Term Incentive Plan 118 5.7.2. FY15 LTIP performance outcomes 119 5.7.3. FY15 LTIP awards 119 5.7.4. FY16 and FY17 LTIP operation 120 5.8. Salary Sacrifice Share Plan 123

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I Corporations Act 2001 Act Corporations FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Commenced employment 1 January employment 2017) Commenced Commenced as CFO and Executive Director as CFO and Executive Commenced (Ceased employment 31 January employment 2017) (Ceased (Ceased employment 31 December 2016) employment (Ceased on 6 February 2017) on 6 February Further details in regard to Company Directors can be found can be found Directors Company to details in regard Further in the Overview Section of the Annual Report. Whilst the functional and reporting currency of Fortescue of view that presentation it is the Directors’ is US dollars, a provides dollars in Australian information remuneration remuneration practices and fair reflection of the accurate more are and Employees Executives as all Directors, of Fortescue, dollars. in Australian remunerated Report and unless report partThis forms of the Directors’ been audited sectionsotherwise have the following indicated with section 308 (3c) of the in accordance Former N Cernotta Operations Director Executive Directors Executive Current N Power E Gaines ( Officer Chief Executive Officer Chief Financial Former S Pearce personnel management Other key Officer Chief Financial Current G Lilleyman ( Operations Director

and Accounting Standards. Standards. and Accounting Commenced as CFO and Executive Director as CFO and Executive Commenced (Appointed 16 November 2016) 16 November (Appointed 5 December 2016) (Retired (Appointed as Vice Chair 19 July 2017) (Appointed as Vice 2016) 16 November (Appointed ( on 6 February 2017) on 6 February Remuneration Report This report outlines the remuneration arrangements for report arrangements for This outlines the remuneration key management personnel (KMP). KMP are Fortescue’s responsibility authority ‘those persons having and defined as the activities directing of the and controlling planning, for (whether director including any directly or indirectly, entity, or otherwise)executive of that entity’. ‘executive(s)’ to this Remuneration ReportWithin reference and other key management Directors includes Executive Key Management been no changes to have There personnel. after the reporting date. Personnel in this Remuneration Report provided has information The under the with requirements in accordance been prepared 2001 Act Corporations Who this reportWho covers E Gaines Director Non-Executive G Raby Director Non-Executive 5 December 2016) (Retired P Bingham-Hall Director Non-Executive Former O Hegarty Chair Vice J Baderschneider Director Non-Executive J Morris Director Non-Executive The KMP of the Group for FY17 for KMP of the Group The Directors Non-Executive Current A Forrest M Barnaba Chairman C Huiquan Independent Director Lead Warburton S Director Non-Executive Director Non-Executive Remuneration Report

1 FY17 overview and year ahead

Fortescue’s remuneration strategy seeks to build a performance oriented culture by attracting and retaining the best people to align with driving increased shareholder value.

Fortescue’s Board and Remuneration and Nomination Committee (RNC) are committed to the continued review and refinement of the remuneration strategy toensure it meets the changing needs of the organisation, maintains market competitiveness, and aligns to shareholder interests.

1.1 FY17 Remuneration outcomes - linking performance and pay

The Board takes into consideration both quantitative and qualitative assessments when deliberating on executive remuneration to ensure that reward outcomes reflect both Company and individual performance. The following explains how fixed and variable remuneration outcomes were driven by performance in FY17.

Total Fixed Remuneration (TFR) Further details are provided on page 128

Delivery

Cash, superannuation and optional salary sacrifice benefits.

Performance measures

An individual’s TFR is a fixed/guaranteed element of remuneration.

Outcomes

• In consideration of fixed remuneration levels • CEO and CFO TFR is also benchmarked against the and business climate, there was no annual ASX 30, ASX 50 Indices as well as global listed resources salary increase across the Company in FY17 companies. • TFR for the CEO and executives is benchmarked against companies in the ASX 100 Resources Index

Short Term Incentive Plan - Executive and Senior Staff Incentive Plan (ESSIP) Further details are provided on page 112

Delivery

A minimum of 50 per cent of the incentive value In FY17, the Board introduced an additional stretch objective (up to 100 per cent on election) is granted in designed to drive outperformance against the FY17 budgeted share rights with the balance in cash. cost of production stretch target (FY17 ESSIP Additional Stretch Objective). Share rights are granted based on the share price at the beginning of the performance period with 100 per cent of the awards in respect of the FY17 ESSIP Additional value realised at the time of award at the end of the Stretch Objective are payable in cash. performance period. The FY17 ESSIP Additional Stretch Objective is for the FY17 Movement in share price over the performance year only. It is not applicable to future years. period directly affects the value received ensuring full alignment with returns to shareholders over the performance period.

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I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE stretch target stretch Targets Financial Company • AROE • Production • Cost Targets Growth Company • Safety • Mine Life and engagement • Culture Objective Stretch Additional Outperformance of production of June 2017 cost • performance against all other FY17 On the basis of overall to its discretion has exercised the Board targets, stretch the ESSIP based on the 17 for component the C1 cost award the and becoming achieved reduction in C1 costs per cent China in FY17. to ore iron of seaborne provider cost lowest of production was US$9.20/wmt against June 2017 cost The an represents outcome of

FY15 LTIP AROE performance was not of 20 per cent Threshold under this plan. rights vested met and no share performance over Company Notwithstanding strong performance the ability achieve to period, year the three has performance of the FY15 LTIP target the required price. ore by the iron influenced been heavily FY15 LTIP for the p the for FY15 LTIP solely against single financial Measured • price based on the share granted rights are Share • Long Term Incentive Plan (LTIP) Incentive Term Long on page 118 provided details are Further CEO Performance Targets Annual plus Growth on Company • Measured Other KMP Performance KPIs aligned Personal five to per the CEO plus an additional four As • Short Term Incentive Plan - Executive and Senior Staff Incentive Plan (ESSIP) (continued) and Senior Staff Incentive Plan - Executive Incentive Term Short on page 112 provided details are Further of performance including measures scorecard A balanced are which all of measures, financial and non-financial company. a resources for value creation fundamental to of financial the key drivers represent measures Financial performance. of performance levels with each target set at stretch are Targets opportunity) of maximum in 100 per cent either met (resulting in no payment). or not met (resulting vary to its discretion the level exercise may Board The overall when considering or negative) (positive of award the performance period. over value generated shareholder performance company overall will consider Board The operating the measures, in of stretch including the degree and on the prior year of improvement level environment, performance competitors. global versus outstanding results has achieved During FY17, the Company outperformance (including targets of the against all stretch in respect ESSIP of the FY17 target stretch of Production Cost cost stretch specific C1 The Objective). Stretch Additional reduction on was a 21 per cent of US$12.16 per tonne target of US$15.43. the FY16 outcome with was almost achieved target C1 stretch aggressive The per cent. 17 by reduced C1 costs Delivery 1.1 1.1 - linking (continued) performance outcomes and pay Remuneration FY17 1 ahead (continued) and year FY17 overview Remuneration Report Remuneration Report

2 Remuneration Governance

Fortescue believes that robust governance is critical to underpinning the effectiveness of the remuneration strategy.

2.1 The Remuneration and Nomination Committee

The Remuneration and Nomination Committee (RNC) • Gender pay equity operates under a Board-approved Charter. The purpose of the RNC is to provide assistance and recommendations • Matters relating to the Company’s recruitment, to the Board to ensure that it is able to fulfil its retention and termination policies responsibilities relating to the following: • Nomination and review of applicants for • Remuneration strategy Board Director positions • Non-Executive Director remuneration • Committee member appointments. • Chief Executive Officer and Executive A copy of the Charter is available under the Corporate Director remuneration Governance section at www.fmgl.com.au

• Senior executive remuneration The RNC in FY17 consisted solely of Non-Executive • Short term and long term incentive plans Directors. The Chief Executive Officer and others may be invited to attend all or part of meetings by the • CEO recruitment Committee Chair as required, but have no vote on matters before the Committee. • Annual performance review of the CEO • Succession planning and talent management The process and accountabilities in determining remuneration are shown below. • Diversity strategy

REMUNERATION BOARD OF DIRECTORS CONSULTANTS • Approving the remuneration of Non-Executive Directors and CEO May be engaged directly • Ensuring remuneration practices are competitive and strategic and align with the attraction by the Board or Remuneration and retention policies of the Company and Nomination Committee to provide advice or information relating to KMP that is free from influence of management

BOARD REMUNERATION AND NOMINATION COMMITTEE Advise the Board on: • Remuneration strategy, policies and practices • Non-Executive Director remuneration • Executive remuneration • Diversity strategy • Gender pay equity

REMUNERATION CONSULTANTS Will be engaged directly by management other than in respect of KMP to provide HUMAN RESOURCES MANAGEMENT advice and market data to • Implementation of remuneration policies and practices ensure Fortescue’s • Advising the Remuneration and Nomination Committee of changing statutory and market conditions remuneration position remains competitive • Provides relevant information to the Remuneration and Nomination Committee to assist with decisions

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I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Executive remuneration is granted in share rights in share is granted remuneration Executive of the at the commencement price value share face hold to performance period motivating executives value shareholder and grow shares TFR exceeds awarded shares rights. vested as awarded are FY16 onwards from offered their vested exercise to 15 years up to have Participants tax is deferred and income shares rights into until exercise. for how the Chairman and Directors can deal in Company can deal in Company Directors the Chairman and how for can be Policy Trading Securities Company’s The Securities. section at Governance the Corporate from accessed www.fmgl.com.au on acceptable transactions in dealing in the Company’s transactionson acceptable in dealing in the Company’s and debt notes including shares, various securities, options. unacceptable periods for trading in Company Securities trading in Company periods for unacceptable civil and criminal penalties including detailing potential information. misuse of confidential for policy shares or mandatory on awarded holding condition it is important executives: for note to however clear guidance on how Company securities may may securities Company on how clear guidance be dealt with. enables employee and the Company shares Fortescue participation short through as a shareholder and long salaryreinvestment and dividend sacrifice incentives, term programs. approach policyThe also sets out a specific governance guidance provides Policy Trading Securities Fortescue’s of component • risk’ ‘at of the A minimum of 79 per cent • is based on the rights granted number of share The • and rights granted number of share combined The • (both short incentives and long term) All Fortescue and details acceptable Policy Trading Securities The minimum shareholding a formal does not have Fortescue 2.4 Securities Trading Policy Trading 2.4 Securities provides Policy Trading Securities Fortescue’s and holding conditions Minimum shareholding 2.5 own to encouraged are and employees All Directors . or inadvertent) of any person, the Board may make may person, the Board or inadvertent) of any that no unfair benefit is ensure to a determination or Participant any obtained by (including, without limitation, a material without limitation, a material (including, of any of financial information) misstatement person or vests or may vest as a result directly or indirectly of: as a result vest or may vests not vested as a result directly or indirectly of any directly or indirectly of any result as a not vested 1) a) or b) in paragraphs to referred circumstance of the level reconsider may the Board above, satisfaction and of the applicable Conditions lapsed have that may Award any and vest reinstate appropriate determines the extentto that the Board in the circumstances. initiated where in the opinion of the Board: where initiated appropriate to perform its duties and responsibilities, perform to duties and responsibilities, its appropriate including the authority engage external to professionals it deems appropriate. on terms the to and PwC in relation Associates Egan retained and practices of policies the provision and review did This market trends. on of general information with any the Committee providing not incorporate by the as defined recommendations remuneration 2001 Act Corporations Remuneration Report 2.3 Clawback Policy Clawback 2.3 will be Clawback Policy. a Clawback operates Fortescue otherwise not have vested, which would An Award, 1) of obligations dishonesty or breach the fraud, a) action other any or omission (whether intentional b) has otherwise vested, which may have An Award, 2) 2.2 Use of remuneration consultants of remuneration Use 2.2 and authority has the resources Committee The the Committee ended 30 June 2017, During the year 2 (continued) Governance Remuneration Remuneration Report

3 Executive remuneration strategy

Fortescue’s reward strategy seeks to build a performance oriented culture that supports the achievement of the Company’s strategic vision and to attract, retain and motivate employees by providing market competitive fixed remuneration and incentives.

The reward strategy also supports Fortescue’s growth and The Board acknowledges that market conditions (including progression as one of the world’s leading producers of iron material conditions outside the control of the Company), ore through: share price and market capitalisation may change the Company’s relative comparator group from time to time. • Being well positioned to deliver fair and market competitive rewards The Board, however, has a long term strategy to ensure that executive remuneration is appropriately positioned • Supporting a clear performance focus and to motivate, attract and retain key executives and senior acknowledging global industry outperformance employees through the commodity cycles to deliver on the • Alignment to the long term goals of the Company. current and long term strategic activities of the Company. Rewarding and retaining executives throughout the 3.1 Remuneration Policy commodity cycle is critical to long term shareholder value.

Fortescue is committed to providing competitive In FY16 Fortescue was ranked number 32 on the ASX 100 remuneration packages to its executives and senior by market capitalisation and improved to number 22 at employees. Fortescue benchmarks remuneration 30 June 2017. components against major indices such as the ASX 30, ASX 50 and ASX 100 Resources Indices as well as Information may also be sought from independent comparable roles in global peer group companies. remuneration consultants regarding Executive remuneration as and when required as detailed in section 2.2.

3.2 How remuneration practices align with Fortescue’s reward strategy

Remuneration strategy principle Policy Practice

A minimum 50 per cent of the Drive alignment of employee ESSIP paid in shares with executives High levels of share ownership and shareholder interests able to elect up to 100 per cent in shares. LTIP awarded as shares

Attract and retain key talent Remuneration is benchmarked Market competitive and be competitive against against the ASX 100 Resources Index remuneration relevant companies and other relevant indices

Provide fair reward in Executive remuneration mix Performance focus line with individual and targets a minimum of 64 per cent company achievements of the total opportunity ‘at risk’

Business strategy is prioritised; Include flexibility to reflect clear Fit for purpose market practice is only one input in linkage to business strategy determining the relevant framework

Incentives are measured on strategic Support delivery of long growth performance being a combination Strategic alignment term business strategy and of financial and non-financial measures growth aspirations to support sustainable growth

A significant portion of executive Shareholder and LTIP rewarding sustained performance remuneration granted as performance executive alignment over a three year period rights vesting subject to short and long term performance hurdles

110 FORTESCUE METALS GROUP LIMITED I REMUNERATION REPORT Operating Ore Reserves Corporate Social Overview Governance Financial Report Remuneration Report Corporate Directory 111 and Financial Review and Mineral Resources Responsibility

Other

49% 23% 28% Total at risk at Total 76% 69% 2017 ANNUAL REPORT

I 100% LTIP (at risk) (at LTIP

66% 34% G Lilleyman FORTESCUE METALS GROUP LIMITED METALS FORTESCUE ESSIP (at risk) ESSIP (at

54.5% 45.5% E Gaines S Pearce FY17 Actual Remuneration Mix FY17 Actual Remuneration TFR

65% 35% LTIP (at risk) LTIP The non-IFRS information included in the graph above has not above included in the graph non-IFRS information The been subject audit. to N Power N Cernotta 0 The number of share rights granted under both ESSIP (which rights granted number of share The and of half the incentive) a minimum for generally account determined rights) are solely in share is granted (which LTIP at the start price value share based on the face of the relevant in share means that the movement This performance period. the performance period directly the value affects over price with returns full alignment and ensures executives by received of the same period. the course over shareholders to in the section clearly (shown mix below) remuneration The components of risk’ ‘at proportionillustrates the significant of performance for the pay and reinforces remuneration executive a minimum Further, the Board. policy by adopted alignment of the total a maximum of 100 per cent) (up to 79 per cent rights of share form in the is offered component risk’ ‘at with fully aligned movement price and subject share to price value share based on the face calculated shareholders meansThis of the performance year. at the commencement quarters three the individual of the of the value to that over at price share the is tied directly to ESSIP and LTIP combined to is aligned reward that executive ensuring the time of award value. shareholder 80% 60% 40% 20% 100% ESSIP (at risk) TFR 20% 31% 38% 31% 24% 40% 36% 0% 40% 60% 80% 100% CEO threshold and no awards were made under this plan. were and no awards threshold payment up to the date he ceased employment he ceased the date up to timing of his cessation of employment timing of his cessation share price growth of the equity component from of the equity from component growth price share the performance period A$5.2591 over A$3.759 to Executive remuneration has a fixed component and variable ‘at risk’ components, components, risk’ ‘at variable component and a fixed has remuneration Executive performance of Company the achievement of which is dependent on the payment objectives. and individual targets and growth CEO and his direct reports in FY17: structure comprise: Plan (SSSP). Share Sacrifice is benchmarked against the market taking account into fourth iron largest position as the world’s the Company’s and its ranking Securities producer on the Australian ore is benchmarked against Remuneration Fixed Exchange. the ability with the market median (50th percentile) total quartile or above earn third to (75th percentile) outstanding performance against for remuneration targets. stretch in Remuneration is benchmarked against companies Index, ASX 30, ASX 50 and both the ASX 100 Resources companies. in global peer group roles comparable • The FY15 LTIP did not meet the minimum performance FY15 LTIP The • • Other relates to Mr Cernotta’s ex-gratia termination ex-gratia termination MrOther to Cernotta’s relates • • Mr Cernotta’s STI reflects benefit the pro-rata accrued Mr Cernotta’s • The chart below represents the actual chart The remuneration represents below KMP in 2017: mix for (STI) reflects the Incentive Term value of the ShortThe • did not participate the to in the STI due Mr Pearce • reports Remuneration Report 4.1 mix Remuneration both the for been met have hurdles superior performance stretch when mix for remuneration the shows table below The remuneration of the executive key components The TFR • ESSIP • LTIP. • also include participationRemuneration may in the Salary each of these components comprising remuneration Total 4 structure remuneration Executive CEO direct Remuneration Report

5 Incentive plan operation and performance

5.1 ESSIP

The purpose of the ESSIP is to incentivise and reward Maximum FY17 ESSIP Additional Stretch key Fortescue executives (including KMP) for achieving Objective Opportunity Company and individual performance objectives that drive shareholder value. Chief Executive Officer 50 per cent of TFR 1 participant The CEO’s ESSIP potential award is linked solely to Company objectives with executive’s ESSIP potential CEO direct reports award linked 60 per cent to Company objectives, and 50 per cent of TFR 2 participants 40 per cent to individual performance, aligning CEO and executive remuneration with Company performance during the plan year. Unless the Board exercises its discretion otherwise in The maximum ESSIP opportunity is established at the accordance with the ESSIP plan rules, for individuals who beginning of the financial year for each executive. leave during the year (i.e. before 30 June), the ESSIP is Generally, the ESSIP is delivered as a minimum of 50 per pro-rated based on service during the period, and made cent in ordinary shares, and a maximum of 50 per cent at the usual payment date, which is around September in cash. The plan allows participants to elect to receive of each year, post release of audited and approved full up to 100 per cent of the ESSIP in shares. Share rights are year results. granted based on the election made by the participant Individuals who commence during the year similarly will and represent the maximum number of shares that may have awards under the general ESSIP pro-rated based on be awarded subject to performance. service during the performance period. ESSIP share rights are calculated based on the volume weighted average price (VWAP) of Fortescue shares traded 5.2 How ESSIP objectives and weightings are determined over the first five trading days of the performance period Generally, ESSIP targets and measures are set on an (e.g. 1 July 2016 to 7 July 2016). annual basis and are linked to the annual stretch budget The maximum incentive opportunity for KMPs in FY17 and Fortescue’s strategic plan focusing on core drivers of is shown below. shareholder value result in well balanced financial and non- financial targets. Maximum General ESSIP opportunity Personal objectives are set at stretch levels of performance Chief Executive Officer with measures and weightings aligned to the individual’s 112.5 per cent of TFR* 1 participant ability to influence outcomes and ensure focus on critical deliverables. CEO direct reports 75 per cent of TFR* 3 participants The following charts show the relationship between the primary ESSIP performance measures for the CEO and other KMP: * Note that the actual award outcomes under the ESSIP will be determined by the number of objectives achieved • The CEO has 55 per cent financial and 45 per cent and the value of the Fortescue shares at time of vesting. non-financial targets In addition to those awards that are generally granted • Financial and non-financial targets are aligned under the ESSIP, the Board has the ability to introduce specifically to the executive’s respective roles and additional awards that are aligned with and support the responsibilities and financial targets range from Company’s business strategy. Additional awards may be 53 per cent to 65 per cent comprised of cash, shares or a combination of both and • Financial includes cost, production, AROE and balance are granted at the discretion of the Board. sheet management measures In FY17, the Board introduced the FY17 ESSIP Additional • Non-Financial includes safety, growth, culture and Stretch Objective, an additional stretch target designed community measures. to drive outperformance against the FY17 budgeted June 2017 month cost of production stretch target. Cost of production is a significant driver of profitability given the inability to influence iron ore pricing and even more critical in a declining iron ore price environment.

The value of awards made in respect of the FY17 ESSIP additional stretch objective reflect the individual’s ability to influence the cost reductions required to achieve this target and represent an outperformance payment under the FY17 ESSIP. 100 per cent of the awards in respect of the FY17 ESSIP additional stretch objective are payable in cash.

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I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE (FINANCIAL) 12.5% PRODUCTION (FINANCIAL) 30.5% PRODUCTION (FINANCIAL) 25% SAFETY 22.5% PRODUCTION 15% SAFETY 25% SAFETY FY17 FY17 FY17 CULTURE/ OTHER 10% CULTURE/ OTHER 10% CULTURE/ OTHER 12% FINANCIAL 32.5% GROWTH 10% FINANCIAL 52.5% GROWTH 10% FINANCIAL 22.5% GROWTH 10% Director Operations Director Chief Financial Officer Chief Financial Chief Executive Officer Chief Executive Remuneration Report 5.2 How ESSIP objectives and weightings are determined (continued) are ESSIP objectives and weightings How 5.2 5 and performance (continued) plan operation Incentive Remuneration Report

5 Incentive plan operation and performance (continued)

5.3 How the ESSIP works: a general example

ESSIP participant rewards are designed to reflect Company performance and provide alignment with shareholder outcomes by generally linking a minimum of half the ESSIP to share price movement over the financial year.

Example: The example below assumes that Executive A has an incentive opportunity of $100,000 and has elected to take 70 per cent of the incentive in shares. Details of offer Nominal Value of full award $100,000 VWAP at start of FY17 (1 to 7 July 2016) $3.759 Participant Share Weighting 70% Potential award Cash (30 per cent of opportunity) $30,000 Nominal value of share rights (70 per cent) $70,000 Share Rights (70 per cent of opportunity) (ie $70,000 ÷ $3.759) 18,622 Example outcome Percentage of incentive opportunity achieved (company and personal performance) 80% Cash paid (80% of cash component) $24,000 Shares Awarded (80% of share rights convert to ordinary shares) 14,898

The number of share rights granted in respect to the FY17 ESSIP is determined based on the VWAP at the start of the performance period which was A$3.759:

• If the share price at the time of award is higher, executives will receive higher value per share right • If the share price at the time of award is lower, the value to executives is decreased.

The value of share rights is therefore aligned with shareholder interests as executives receive value consistent with share price movements. Value is not realised until the vested rights are exercised into shares and then sold.

As noted above, in FY17 the Board introduced the FY17 ESSIP additional stretch objective. The value of awards made in respect to this measure reflect the individual’s ability to influence the cost reductions required to achieve this target and represent an outperformance payment under the FY17 ESSIP. 100 per cent of the awards granted in respect of the FY17 ESSIP additional stretch objective are payable in cash.

5.4 How Fortescue performed over the past five years

Fortescue continues to build on its performance over the past five years, showing strong performance in safety, culture, production and costs to deliver shareholder value. In considering Fortescue’s performance and benefits for shareholder value, the Board has regard to the following indices in respect of the current financial year and the previous four financial years.

Over the performance period the share price increased by 49 per cent (opening share price A$3.50 versus closing share price A$5.22) and total shareholder return for one year was 57.46 per cent including (A$0.32 cents dividend). This ranked Fortescue number three, relative to other constituents of the ASX 100 Resources Index.

2017 2016 2015 2014 2013 Total tonnes shipped (wmt) 170.4 169.4 165.4 124.2 80.9 Revenue from iron ore operations - US$millon 8,335 6,947 8,390 11,611 8,057 EBITDA – US$million 4,744 3,195 2,506 5,636 3,575 Net profit US$million 2,093 985 316 2,740 1,746 Return on equity % 23 12 4 43 39 Gearing (Book value of debt/debt + equity) 31 45 56 56 71 Dividends paid A$ per share 0.32 0.05 0.13 0.2 0.04 Share price A$ 5.22 3.50 1.91 4.35 3.04 Change in share price A$ 1.72 1.59 (2.44) 1.31 (1.81) Change in share price % 49 83 (56) 43 (37)

The non-IFRS information included in the table above has not been subject to audit.

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I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE period and management’s ability to respond to to ability respond to period and management’s events unforeseen peers during the period global to compared the prior year above. not stated criteria of performance objectives for the CEO and executives in in of performance the CEO and executives objectives for value. sustainable shareholder long term deliver to order of cost reduction across all operating and support reduction across of cost functions production targets. and challenging targets is not accurately reflected in the level of in the level reflected is not accurately targets (whether under or targets against stretch achievement or increase to its discretion exercise may the Board over), and therefore of the incentive level the vesting decrease the value awarded.

and mix weighting the relative determined Board The in respect set a number of key targets In FY17, the Board • the performance over operating environment The • performance value generated and shareholder Financial • of improvement and level Global competitiveness • on key business drivers across of improvement level The • performance or other under or over other relevant Any performance where stretch against In circumstances the context in which the targets were set were the context in which the targets individual performance. Company performance comprises Company individual performance. financial and non-financial based measures company both a short drive to perspective designed and long term of interests the long term and protect on performance, of processing seeking efficient by ensure shareholders to met. reserves that financial objectives mined and are business planning and budgeting in line with the annual of stretch in line with a culture established and are process annually is reviewed each target for weighting The targets. reflect its criticality, to year vary to and may year from and impacteffortto achieve on the business. performance CEO) (and objectives with non- Company remaining 45 per for the accounting financial targets for non-financial objectives mix of financial and The cent. roles and to their specific varies and are other executives responsibilities. of financial performance the key drivers of the represent long delivering for a framework provide and Company price. ore iron of the irrespective value, shareholder term component of the ESSIP is measured non-financial The of an assessment against a range to with reference are A majority of the non-financial measures measures. quantitative-based. outperform to those targets. and strive targets stretch the Board When deliberating on performance outcomes, when considering assessment process a rigorous follows including: performance outcomes Remuneration Report 5.5 FY17 ESSIP performanceFY17 outcomes 5.5 and based on an assessment of Company are ESSIP awards Board the Fortescue set by objectives are Performance for 55 per cent of the account In FY17, financial targets chosen as they were financial performance The measures set challenging is to culture A key element of Fortescue’s • and and targets in the measures of stretch degree The • targets against the stretch of achievement level The 5 and performance (continued) plan operation Incentive Remuneration Report

5 Incentive plan operation and performance (continued)

5.5 FY17 ESSIP performance outcomes (continued)

The ESSIP performance objectives in 2017 are shown below: FY17 Short Term Incentive Outcomes Weighting (% of STI) Exec- Objective and measurement CEO utives Result Achievement

Company financial performance Financial 10 10 23 Continued focus on cost reduction, innovation, technology and • AROE process efficiency have had a positive impact on profitability and > 15% return on equity with an 92% increase to AROE compared to FY16. Production 22.5 12.5 170.4 Full year production target marginally exceeded with 170.4 million • Tonnes Shipped wmt iron ore shipped in FY17 notwithstanding very challenging ≥ 170 million wmt weather conditions during Q3. C1 Cost 22.5 12.5 12.82 Although the C1 cost stretch target was not met the outcome • C1 cost represents a 17% reduction in C1 costs over the FY17 ≤ US$12.16/wmt performance year contributing to an overall 73% reduction in C1 costs since 2012. In light of the substantial cost savings delivered in FY17 and overall company performance, the Board has determined that this performance measure has been met.

Company growth performance Safety (1) 25 15 2.9 Keeping people safe is Fortescue’s highest priority and in FY17 • TRIFR Fortescue achieved outstanding results achieving a 33% < 3.9 reduction in TRIFR from 4.3 to 2.9. Physical 10 10 Met FY17 target production rate of 170mtpa, design strip ratio and • Target tonnes and production specifications have been achieved whilst maintaining quality achieved whilst the mine life for each site. maintaining mine life Culture 10 Included 92 Safety survey participation rate of 92% exceeded target which • Safety Survey participation in is an exceptional result for a global miner. rate ≥75% personal 7 Positive impact on employee retention which saw a reduction KPIs • Voluntary Turnover Rate in voluntary turnover to 7%. ≤10%

1 In the event of a fatality no award is made for the Safety KPI. Personal objectives

Personal Objectives n/a 40 Partially Personal objectives are assessed by the CEO and recommended • 4 to 5 Personal Objectives met outcomes approved by the Board. set at Stretch Levels of performance against the FY17 Business Plan

In FY17, the Board also introduced the FY17 ESSIP Additional Stretch Objective, designed to drive outperformance against the FY17 budgeted cost of production stretch target.

Cost of production stretch opportunity

• COP of

The non-IFRS information included in the table above has not been subject to audit. In FY17, the CEO was measured solely against Company performance and Cost of Production Stretch Opportunity outcomes thereby ensuring the alignment between Company performance, shareholder value and CEO reward for the performance year. Payment of ESSIP awards are made in September 2017 after the release of the Company’s audited full year results and with final approval from the Board. Further details in regard to the Company’s full year results are set out in the Director’s Report on page 50 to 52.

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e ose of this 2017 ANNUAL REPORT

I 91,780 hts accrued hts accrued 299,282 ESSIP share ESSIP share rights vested rights e grant of the share rights is of the share e grant FORTESCUE METALS GROUP LIMITED METALS FORTESCUE (94,773) - ESSIP share ESSIP share rights forfeitedrights ESSIP share ESSIP share rights lapsed rights basis and represents his accrued entitlement up to the cessation of the cessation entitlement up to his accrued basis and represents ------99,76194,773 (7,981) - - ESSIP share ESSIP share rights granted rights (3) (4) (1) (2) o (A$3.759) at grant price Based on the share o (A$5.2591) at vesting price Based on the share employment which was paid in cash employment No share rights have been granted as the grant of the share rights is subject to shareholder approval which will be sought which will be sought approval rights is subject shareholder of the share to as the grant been granted rights have No share 2017 in November at the AGM entitlement up to cessation of employment was paid in cash (see section of employment cessation 6). entitlement up to report the nominal ESSIP value of vested rights is shown: report the nominal ESSIP value of vested subject to shareholder approval which will be sought at the AGM in November 2017. in November which will be sought at the AGM approval subject shareholder to Mr of 1 January Lilleyman participated date his commencement to in the ESSIP on a pro-rata 2017. basis aligned rig ESSIP share on 31 January of employment on cessation forfeited 2017. Mr rights were Cernotta’s ESSIP share Mr Cernotta’s Remuneration Report S Pearce G Lilleyman N Cernotta ² Mr Pearce did not participate the timing of his resignation. in the FY17 ESSIP due to Mr Pearce ² Unvested share rights lapse once the total at risk outcome of the ESSIP is determined. of the at risk outcome the total rights lapse once share Unvested as th been granted rights have no share participateMs Gaines to is eligible however in the FY17 ESSIP on a pro-rata basis, ¹ 3 4 • The actual share value to the individual is not realised until vested rights are exercised by the participant. For the purp the participant. by For exercised rights are until vested the individual is not realised actual value to The share • • Mr Lilleyman’s ESSIP participation of commencement date basis from is on a pro-rata • Mr Lilleyman’s ESSIP participation on a pro-rata is Mr Cernotta’s • value. and Shareholder reward performance, Executive Company between demonstrating the alignment The table on the following page details the maximum ESSIP cash and share awards against the actual outcomes for FY17. FY17. against the actual for outcomes awards page details the maximum ESSIP cash and share table on the following The election weighting of each executive. based on the share are components share The objective. respect in of the FY17 ESSIP additional stretch reflects the cash payment ESSIP cash award Ms Gaines’ • met. ESSIP share rights reflect the face value share price at the commencement of the performance year when share rights of the performanceyear when share commencement at the price value share rights reflect the face met. ESSIP share or decline in the reflect will either an improvement the Executives rights to value of these share ultimate The granted. are made awards that ensure to is specifically of this approach adoption The the performance period. over price share Company’s Company. in the investment a value which reflects sustainable value of shareholder’s have executives to was year one for return shareholder and total 49 per cent by increased Over the performance price the share period of maximum opportunity 96 per cent on average executives. to ESSIP has awarded The 57 per cent. on actual based performance: details the actual rights that vested in the table below number of share last column The N PowerE Gaines 299,282 - - Executive 5.6 FY17 ESSIP awards FY17 5.6 if all ESSIP objectives ar rights vest All share below. shown of FY17 are the ESSIP at the beginning under rights granted Share 5 and performance (continued) plan operation Incentive Remuneration Report

5 Incentive plan operation and performance (continued)

5.6 FY17 ESSIP awards (continued)

Maximum Nominal value of ESSIP Maximum FY17 ESSIP vested rights Maximum ESSIP additional ESSIP Maximum shares stretch ESSIP oppor- ESSIP oppor- objective additional Share Share tunity Weighting cash tunity oppor- stretch ESSIP price at price at 2017 (% in shares oppor- - value at ESSIP tunity objective cash grant vesting A$ TFR of TFR) (per cent) tunity grant1 outcome (% of TFR) outcome awarded $3.7591 $5.2592

Executive Directors N Power 2,000,000 112.5 50 1,125,000 1,125,000 100% 50 100% 2,125,000 1,125,000 1,573,954 E Gaines3 1,102,500 75 100 - - - 50 100% 551,250 - - S Pearce4 1,102,500 75 ------

Executives G Lilleyman5 1,000,000 75 100 - 375,000 92% 50 100% 500,000 345,001 482,680 N Cernotta6 950,000 75 50 356,250 356,250 90% - - 448,7027 --

1 Based on the strike price at grant being the VWAP of Fortescue shares traded over the first five trading days of the FY17 Plan year ($3.759). 2 Based on the nominal value at vesting being the VWAP of Fortescue shares traded over the first five trading days of FY18 ($5.2591). 3 Ms Gaines commenced as CFO and Executive Director on 6 February 2017. 4 Mr Pearce ceased employment on 31 December 2016. 5 Mr Lilleyman commenced employment on 1 January 2017. 6 Mr Cernotta ceased employment on 31 January 2017. 7 Representing Mr Cernotta’s accrued entitlement under the ESSIP (both the Cash opportunity and ESSIP share rights opportunity), which was paid in cash.

5.7 Long Term Incentive Plan

The LTIP is granted in the form of share rights at the commencement of the three year performance period with awards vesting subject to the achievement of the specified performance conditions. The three year performance period, performance measures and date of assessment and award for each of the LTIPs are as follows:

Plan Performance Period Performance Measure Assessment and Award FY15 LTIP 1 July 2014 to 30 June 2017 AROE September 2017 FY16 LTIP 1 July 2015 to 30 June 2018 AROE, TSR and strategic measures September 2018 FY17 LTIP 1 July 2016 to 30 June 2019 AROE, TSR and strategic measures September 2019

5.7.1 FY15 Long Term Incentive Plan

FY15 LTIP awards to Executives are made under the Performance Share Plan Rules and are granted initially in the form of share rights. Each share right entitles the holder (subject to achievement of the specified performance conditions) to one fully paid ordinary share in the Company for nil consideration.

The Company used absolute return on equity (AROE) as the sole performance measure for the FY15 LTIP assessed over the three year performance period.

AROE was selected in 2015 as the performance measure for the FY15 LTIP for the following reasons: • AROE is one of the most important value metrics reflecting profit earned relative to shareholders equity (the amount of capital invested by shareholders) • AROE performance in excess of the Company’s cost of equity capital will deliver shareholder value Consistent with the ESSIP, the LTIP is designed to provide alignment with shareholder outcomes by linking the value of the LTIP to share price movement over the performance period. A minimum 20 per cent annual AROE hurdle rate was selected for the FY15 LTIP for the following reasons: • 20 per cent exceeded the Company’s cost of equity at that time • The average AROE for the ASX 100 Resources Index from 2010 to 2014 was 9.2 per cent • The 80th percentile AROE for the ASX 100 Resources Index from 2010 to 2014 was 15.6 per cent • 20 per cent was considered a challenging stretch target, a core theme of Fortescue’s culture.

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I LTIP share share LTIP rights vested rights 4 12 23 13 Nil ROE performance (%) FORTESCUE METALS GROUP LIMITED METALS FORTESCUE (242,858)(209,265) - - LTIP share share LTIP rights forfeitedrights against the AROE performance measure. The average AROE over AROE over average The against the AROE performance measure. LTIP share share LTIP rights lapsed rights LTIP share share LTIP rights issued rights FY15 Long Term Incentive Plan (continued) Plan (continued) Incentive Term FY15 Long on 1 January 2017 and accordingly, did not participate in the FY15 LTIP on 1 January 2017 and accordingly, Year ending Year 30 June 2015 ROE Average 30 June 2016 30 June 2017 level Vesting Remuneration Report

N PowerE GainesS Pearce 660,837 242,858 - (660,837) ------• Mr Cernotta’s and Mr Pearce’s share rights were forfeited on cessation of employment. on cessation forfeited rights were share and Mr Pearce’s • Mr Cernotta’s FY15 LTIP Executive G LilleymanN Cernotta 209,265 - - - - - awards 5.7.3 FY15 LTIP under this plan rights vested No share below. shown of FY15 are at the beginning under the LTIP rights granted Share or lapsed. of employment on cessation either forfeited and were is determined of the LTIP the outcome rights lapse once share • Unvested 2017 and Mr employment on 6 February Director Lilleyman commenced as CFO and Executive Ms Gaines commenced • The AROE average for the three year performance period did not meet the 20 per cent minimum threshold performance minimum threshold year cent period did not meet the 20 per the three for average AROE The under this plan. rights vested no share and accordingly in the table below) (as shown performance outcomes FY15 LTIP three years is measured as the sum of AROE for years one, two and three divided by three. Average AROE less than threshold AROE less than threshold Average three. divided by and three two one, years as the sum of AROE for is measured years three performance in no award. will result the to forward the performance will generally be brought period end date of the Company, In of a change of control the event Clawba The discretion. this shortened subject Board ultimate over period, to will vest and awards of the change of control date performance outcomes 5.7.2 FY15 LTIP Vesting between threshold and target is calculated linearly is calculated and target threshold between Vesting at the end of shares to rights convert 30 June 2017. Share 2014 to 1 July from was LTIP the FY15 performanceThe period for performance year period subject performancethe three to 5.7.1 schedule is as follows: vesting The AROE Average Performance thresholdBelow ThresholdTarget FY15 <20% 20% 30+% Vesting rights vest of share 25 per cent Nil rights vest of share 100 per cent 5 and performance (continued) plan operation Incentive Policy also applies to this plan. also applies to Policy Remuneration Report

5 Incentive plan operation and performance (continued)

5.7.4 FY16 and FY17 LTIP operation

The performance period for the FY16 LTIP is from 1 July 2015 to 30 June 2018 and the performance period for the FY17 LTIP is from 1 July 2016 to 30 June 2019. The 34% 33% FY16 and FY17 LTIP plans operate under the performance STRATEGIC ABSOLUTE rights plan rules as approved by Shareholders at the MEASURES RETURN ON Company’s Annual General Meeting on 11 November EQUITY 2015 and are granted in the form of share rights. Each share right entitles the holder (subject to achievement of the specified performance conditions) to one fully paid ordinary share in the Company for nil consideration.

The FY16 and FY17 LTIP is assessed against multiple performance measures weighted as follows:

• Absolute Return on Equity (33 per cent) • Total shareholder return relative to the ASX 100 Resources comparator group (33 per cent) • A basket of strategic measures (34 per cent). 33% The relative weighting between financial and strategic TOTAL SHAREHOLDER RETURN measures provides the ability to assess performance RELATIVE TO THE ASX 100 across a cyclical market. Retaining AROE and adding RESOURCES COMPARATOR GROUP relative TSR ensure continued alignment with delivering shareholder value.

Each of the performance measures provide for a Absolute Return on Equity (AROE) determination by the Board that the Company has AROE performance is measured over the relevant three year performed at a threshold, target or stretch level. These performance period. graduated levels of performance have been included in order to align and reward executives through market As part of the Board’s consideration when determining AROE cycles. In the event that performance is at the target targets, consideration was given to the minimum level in respect of the relevant performance measure, AROE threshold. This consideration included the current executives will be entitled to 100 per cent of the tranche market cycle and historical performance of the ASX 100 of LTIP share rights to which the performance measure Resources comparator group. relates. Where performance is at the stretch level, executives will be entitled to 150 per cent of the Historical performance of the ASX 100 Resources: tranche of LTIP share rights to which the performance • Average AROE for FY11 to FY15 was 7 per cent measure relates. • Average AROE for FY15 was 2.6 per cent, down from Nevertheless, if the target for any individual performance 7 per cent in FY14. measure is exceeded, so that up to 150 per cent of the relevant number of LTIP share rights may vest, the In light of this assessment, the Board lowered the minimum maximum number of LTIP share rights that may vest across threshold from 20 per cent to 15 per cent based on the the three performance measures is capped in aggregate at following: 100 per cent of share rights granted under the plan. • 15 per cent is an aggressive target which exceeds the The Board believes that by incorporating the stretch level Company’s cost of equity of performance into the vesting schedule, the Company • An annual 15 per cent AROE would be at least the 70th will be better able to effectively reward and recognise quartile of performance of the ASX 100 Resources index in executives in years where outstanding performance is any of the past five years achieved. • The stretch target of >30 per cent would be at least the 80th This will serve as further motivation and assist in retention percentile of the ASX 100 Resources index in any of the past through more challenging periods. five years.

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ement of all ether with the I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE

Remuneration Report performance measures and subject to the aggregate performance cap performance subject and the aggregate measures to no windfall ensure is to intent The outcomes. in unintended can result hurdle TSR acknowledge Board that a relative The over will consider the Board is achieved, hurdle TSR but the relative is negative TSR In that the event gains or undue penalty. will that no award or determine of vesting the level reduce discretion, at its absolute and may, performance and circumstances measure. TSR the be made in respect to Measures Strategic Below Threshold Below ThresholdTargetStretch with the achiev together element considered on a linear basis with the stretch performance is calculated between levels Vesting the 60th percentile Below the 60th percentile At the 80th percentile At the 100th percentile At Nil rights vest of share 25 per cent rights vest of share 100 per cent rights vest of share 150 per cent FY16 and FY17 LTIP TSR target and vesting schedule and vesting target TSR FY16 and FY17 LTIP PerformanceTSR Average vests that of tranche Portion achievement of all performance measures and subject to the aggregate performance cap. of all performance and subject the aggregate achievement measures to Return (RTSR) Shareholder Total Relative Below thresholdBelow ThresholdTargetStretch tog element considered a linear basis with the stretch on performance is calculated and target levels threshold between Vesting <15% 15% 30% >30% rights vest of share 25 per cent Nil rights vest of share 100 per cent rights vest of share 150 per cent 5.7.4 FY16 and FY17 LTIP operation (continued) operation and FY17 LTIP 5.7.4 FY16 schedule is as follows: AROE vesting The schedule and vesting target AROE FY16 and FY17 LTIP Performance ROE Average vests that of tranche Portion 5 and performance (continued) plan operation Incentive RTSR is a measure of the performance of the Company’s shares over a three year period against the ASX 100 Resources Index period against the ASX 100 Resources year a three over shares of the performanceRTSR is a measure of the Company’s expressed the shareholder to return the total show and dividends paid to appreciation It price below). share (noted combines as a percentage. any outperform of participants needs to a peer group receive to valuable because the Company are hurdles TSR Relative Index has been chosen as the ASX 100 Resources The market performance. relative to is aligned and therefore, reward commodity market peers and ASX Listed Fortescue’s includes market indicator, because this is a transparent group comparator investment. with for competes that Fortescue the peer group represents and international both local considered the Board performanceTSR measure, the schedule for the vesting When formulating schedule that a vesting determined the Board targets, setting stretch to approach Inmarket practice. line with the Company’s this performance measure for reward executive align to in order market practice was required than standard aggressive more and set at the 60th percentile been have and target both threshold for criteria vesting The returns. with superior shareholder of awards grant a premium for plan also provides The market practice. standard higher than (respectively) 80th percentile the performance period. over return shareholder the market leading total delivers Fortescue where is as follows: schedule vesting TSR The As part of the enhancements made to the LTIP, the Company has introduced a basket of five strategic measures with associated with associated measures strategic basket of five a has introduced the Company partAs the LTIP, made to of the enhancements objectives long term Company’s of the the achievement key performance aimed at directing performance indicators toward objectives). (strategic to the fundamental and objectives that are to key milestones relate specifically the Board objectives devised by strategic The scorecard balanced The and delivery value. of shareholder and growth development continuing sustainability, Company’s the value and that long term on the delivery that drive focus of key milestones to continue that executives ensures approach may of executives in times when external factors even outside the control these achievements has the ability reward to Board impact returns. shareholder Remuneration Report

5 Incentive plan operation and performance (continued)

5.7.4 FY16 and FY17 LTIP operation (continued)

FY16 and FY17 LTIP annual strategic measures and objectives are as follows:

Growth Safety Objective (KPI) • Diversify customer base Objective (KPI) • Improve Fortescue’s relative position against the global • Strategic options for growth safety culture benchmark in iron ore and other commodities Link to strategy Link to strategy • Safety leadership • Growth and diversity of income

FY16 LTIP Resource and FY17 LTIP Balance sheet Management management Objective (KPI) • Increase long term Strategic measures Objective (KPI) • Reduce gearing resources quantity and value (debt/debt + equity) to target levels • No net decrease in mine life and objectives • Overall cost of financing • Quantity, quality and • Maintain cash on hand at Board diversity of tenements approved levels Link to strategy • Balance sheet flexibility • Long term sustainability Link to strategy • Capital efficiency, cash flow and Performance long term Objective (KPI) • Improve Fortescue’s relative sustainability position on the global cost curve with a future target to have a C1 cost which is the lowest in the world • Reduce all-in cash cost • Maximise production capacity without increasing capital expenditure budget Link to strategy • Competitive position, cash flow and efficient use of capital

Strategic measures and their performance targets for each Whether a strategic objective has been achieved is measured strategic objective are set and assessed annually for each at the end of the relevant financial year on an outcome basis financial year of the relevant three year performance period. as follows:

This approach provides the Company with the flexibility Outcome Score to respond to economic and industry challenges as they occur Did not meet 0 to ensure that performance targets are always relevant and drive long term shareholder value. Threshold 1 Target 2 Exceeded 3

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ement of all I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE The balanced scorecard approach ensures that executives continue continue executives that ensures approach scorecard balanced The and long term value drive that milestones on the delivery of key to focus in even these achievements has the ability to reward the Board that impact may of executives times when external factors outside the control returns. shareholder Remuneration Report Shares acquired under this plan are not subject issued in lieu of salary performance are under this plan because they are to conditions acquired which Shares otherwise subjectwould a monetary and are to be payable limit of A$5,000 per annum. Executives may nominate an amount (up to A$5,000 per annum) of pre-tax an amount (up to nominate salary may ordinary under the Salary shares acquire to Executives of these ordinaryacquisition tax on the income kept in the SSSP, ordinary are shares Provided Plan (SSSP). Share Sacrifice in the SSSP. remain Disposal restrictions apply while the shares years. seven up to for the Executive by can be deferred shares 5.8 Salary Plan Share Sacrifice 5.8 performance measures and subject to the aggregate performance cap. performance and subject aggregate the measures to 1 July 2016 is from LTIP 30 June 2018 and the FY17 1 July 2015 to is from the FY16 LTIP performanceThe for period performance year period subject performance three at the end of the to against the three rights vest 30 June 2019. Share to measures. forward the performance will generally be brought period end date of the Company, In of a change of control the event The discretion. this shortened subject Board ultimate over period, to will vest and awards of the change of control the date to this plan. applies to also Policy Clawback FY18 Remuneration Report. will be reported in the Company’s of the FY16 LTIP outcomes Performance long on the delivery that drive focus of key milestones to continue that executives ensures approach scorecard balanced The in times when external factors even outside the these achievements has the ability reward to value and that the Board term impact returns. may shareholder of executives control Vesting between performance levels is calculated on a linear basis with the stretch element considered together with the achiev with the together considered element on a linear basis with the stretch performance is calculated between levels Vesting 5.7.4 FY16 and FY17 LTIP operation (continued) operation and FY17 LTIP 5.7.4 FY16 as follows: and objectives are measures FY17 annual strategic schedule and vesting target measure Strategic FY16 and FY17 LTIP Performance ThresholdBelow ThresholdTargetStretch Score <5 5 10 vests that of tranche Portion 15 rights vest of share 25 per cent Nil rights vest of share 100 per cent rights vest of share 150 per cent 5 and performance (continued) plan operation Incentive Remuneration Report

6 How executive remuneration is reported

Executive remuneration is reported in a number of ways throughout this report, differences of which are driven by the following:

• Total remuneration package – represents the current - Value received by Executives is subject to performance remuneration package at stretch target comprising fixed and share price movement aligned with shareholder remuneration plus the nominal value of the ESSIP and value. Refer to the table below for further information. LTIP at the applicable participating percentage. There • Statutory remuneration – represents remuneration was no increase to total fixed remuneration in FY17. including share based payments calculated in Refer to section 7 for further information accordance with Australian Accounting Standards • Actual remuneration paid – represents the nominal including the fair value attributed to the FY17 ESSIP value to the individual and includes fixed remuneration, share component plus one year each of the FY15, FY16 any cash incentives paid and the nominal value of equity and FY17 LTIP. In FY17, total statutory remuneration is at the time share rights vest higher than the prior year due to a negative accounting expense for share based payments in FY16. Refer to section 6.2 for further information.

6.1 Actual remuneration paid in FY17

The Board follows a structured process for ensuring that executive remuneration is aligned to shareholder value and stretch targets are set for the incentive plans which are reflective of market conditions and other challenges facing the industry. The nominal value of actual pay realised by executives is reflective of the following: FY17 ESSIP is generally awarded partly as vested rights (minimum 50 up to 100 per cent determined on election) with the balance (0-50 per cent) awarded in cash: • FY17 ESSIP share rights granted at the beginning of the performance period at a face value share price of A$3.759 • FY17 ESSIP vested rights awarded have a nominal value based on A$5.2591 being the five day VWAP at the beginning of FY18. The increase in share price over the respective performance periods has resulted in an increase in equity value to executives in respect to these plans • FY17 ESSIP additional stretch objective was awarded in cash • FY15 LTIP did not vest. The following table shows the nominal remuneration value realised by the individual and includes fixed remuneration, any cash incentives paid and the nominal value of equity at the time the share rights vest or shares are awarded. The following key points should be read in conjunction with the table below: • Mr Pearce did not participate in the FY17 ESSIP • Mr Cernotta’s FY17 ESSIP award represents his pro-rata accrued entitlements paid as a cash payment • Mr Cernotta’s other payment relates to an ex-gratia payment of A$947,596 (inclusive of notice).

FY17 ESSIP cash paid (including the FY17 ESSIP Nominal value Nominal additional of FY15 LTIP total FY17 Fixed(1) stretch FY17 ESSIP shares Other remuneration A$ remuneration objective) vested rights awarded payment earned in FY17

N Power 2,000,000 2,125,000 1,573,954 - - 5,698,954 E Gaines(2) 459,375(3) 551,250 -(10) - - 1,010,625 G Lilleyman(4) 500,000(5) 500,000 482,680 - - 1,482,680 S Pearce(6) 551,250(7) ----551,250 N Cernotta(8) 554,167(9) 448,702 - - 947,596 1,950,465 (1) Fixed remuneration includes cash salary, paid leave and superannuation. (8) Mr Cernotta ceased employment on 31 January 2017. (2) Ms Gaines commenced as CFO and Executive Director on 6 February 2017. (9) Pro-rata entitlement. (3) Pro-rata entitlement. (10) Ms Gaines is eligible to participate in the FY17 ESSIP (4) Mr Lilleyman commenced employment on 1 January 2017. on a pro-rata basis and has elected to receive a 100 (5) per cent of the FY17 ESSIP in vested rights subject to Pro-rata entitlement. shareholder approval as detailed in Section 6.3. (6) Mr Pearce ceased employment on 31 December 2016. (7) Pro-rata entitlement. The non IFRS information included in the table above has not been subject to audit.

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Total Total Total statutory remuneration . 2017 ANNUAL REPORT

I - - 1,305,343 tion 6.3. (385,809) 1,538,510 (447,741) 282,828 value LTIP share share LTIP 5 Share based payments Share 559,838 - 1,556,107 value share share ESSIP FORTESCUE METALS GROUP LIMITED METALS FORTESCUE 1,424,582 1,918,947 7,470,057 Other End of service Share-based payments payments ation paid to executives due to the accounting treatment of treatment the accounting due to executives ation paid to 12,304 - 337,644 - 12,304 - 972,123 15,000 19,904 - Post Post ment ment benefits employ- nuation Superan- Superan- ccordance with Australian Accounting Standards and include share share and include Standards Accounting with Australian ccordance 8,528 30,000 - 9,883 13,900 283,813 - Non- benefits monetary ESSIP ESSIP stretch stretch for 2017 for the FY17 plan year plan year objective) (including additional cash value cash value

and Short-term employee benefits Short-term employee fees 481,269 483,590 500,000 448,702 - - 403,514 422,973 551,250 631 - Cash salaryCash 3 4 1 2

share based payments. For details of remuneration actually paid to the Chief Executive Officer and executives in FY17 refer to refer in FY17 executives Officer and actually Chief Executive the of remuneration details paid to For based payments. share section 6.1. based payments expensed during the financial year, calculated in accordance with AASB 2 with AASB accordance in calculated year, expensed during the financial based payments the effect expected share, of the underlying volatility price date, at grant the right, the impact price of dilution, the share rate interest factor and the risk free conversion share estimated the expected dividend yield, additional market conditions, of the right. the term for the estimated fair value of the long term performance rights was determined using a combination of analytical approaches, of analytical approaches, performance using a combination fair value of the long term determined rights was the estimated of life the effective price, the exercise account fair value estimation takes into The and Monte-Carlobinomial tree simulation. entitlements paid out on resignation. entitlements paid out on resignation. N Cernotta Executives G Lilleyman FY17 A$ N Power 1,963,000 2,125,000 Executive Directors Executive E Gaines S Pearce Ms Gaines commenced as CFO and Executive Director on 6 February 2017. on 6 February Director as CFO and Executive Ms Gaines commenced 2016. on 31 December employment ceased Mr Pearce 1 January on Mr employment Lilleyman commenced 2017. on 31 January employment Mr ceased Cernotta 2017. as detailed in Sec approval subject shareholder vest to rights that may value is the cash value of share Ms Gaines ESSIP share Statutory remuneration disclosures for year ending 30 June 2017 for year disclosures Statutory remuneration on resignation forfeited rights were share ESSIP and LTIP Mr Pearce’s • and long service entitlements paid out on resignation annual leave leave accrued to relates other payment • Mr Pearce’s on resignation forfeited rights were share ESSIP and LTIP • Mr Cernotta’s paid as a cash payment entitlements pro-rata accrued represents award FY17 ESSIP • Mr Cernotta’s leave annual and accrued of notice) of A$947,596 (inclusive an ex-gratia payment to relates other payment Mr Cernotta’s • 1 2 3 4 5 Remuneration Report from remuner actual significantly Statutory differs remuneration the short fair value of estimated The performance option pricing model and using a trinomial term rights was determined 6.2 Statutory remuneration disclosures for executives for disclosures Statutory remuneration 6.2 in a prepared Statutory are disclosures remuneration 6 is reported (continued) remuneration executive How Remuneration Report

6 How executive remuneration is reported (continued)

6.2 Statutory remuneration disclosures for executives (continued)

Statutory remuneration disclosures for year ending 30 June 2016 • ESSIP cash value payable in respect to FY16 was paid in September 2016 • In FY16, an accounting expense reversal related to ESSIP and LTIP share rights resulted in a reduction in total statutory remuneration compared to the prior year due to: - A partial reversal of share-based payment expense following completion of the three year performance period ended 30 June 2016, and the assessment of performance outcomes of the FY14 LTIP - A partial reversal of share-based payment expense as a result of the estimated vesting outcomes of the FY15 LTIP for the three year period ending 30 June 2017

• FY16 ESSIP and FY14 LTIP awarded to Mr Meurs represents accrued benefits as a pro-rata cash payment • Mr Meurs FY16 ESSIP, FY14 LTIP, FY15 LTIP and FY16 LTIP share rights were forfeited upon his resignation in April 2016 • Mr Meurs’ other payment relates to accrued annual leave and long service leave entitlements paid out on resignation.

Post employ- ment End of Short-term employee benefits benefits service Share based payments ESSIP cash value Other Cash for FY14 share- salary 2016 LTIP Other Non- ESSIP LTIP based FY16 and plan cash incentive monetary Superan- Other share share pay- $A fees year value payment benefits nuation payment value value ments Total

Executive Directors N Power 1,963,000 1,313,999 - 2,000,000 8,186 30,000 - 1,118,626 (1,109,672) - 5,324,139 P Meurs1 233,385 779,983 289,917 - 3,087 27,500 170,193 - (1,316,302) - 187,763 S Pearce 1,067,700 453,127 - 500,000 4,093 27,800 - 411,095 (446,444) - 2,017,371

Executives N Cernotta 920,000 351,975 - - - 30,000 - 349,981 220,640 - 1,872,596

1 Mr Meurs retired 18 April 2016.

6.3 Details of performance grants to executive directors

At the 2015 AGM, shareholders approved the maximum number of share rights to be granted to Mr Power without further shareholder approval as shown in the table below. Actual performance rights are granted annually by the board in accordance with the Performance Rights Plan.

Mr Power Maximum share right grant FY16 to FY18 Share rights granted FY16 to FY18 ESSIP share rights 3,671,425 924,213 LTIP share rights 4,895,232 2,464,567 Total 8,566,657 3,388,780

126 FORTESCUE METALS GROUP LIMITED I REMUNERATION REPORT Operating Ore Reserves Corporate Social Overview Governance Financial Report Remuneration Report Corporate Directory 127 and Financial Review and Mineral Resources Responsibility

r

the of

/lapsed Forfeited Forfeited 2017 ANNUAL REPORT

I

% Vested achieved achieved Performance Performance FORTESCUE METALS GROUP LIMITED METALS FORTESCUE rights rights Value of Value granted at at granted date grant granted Value per Value share right right share determined using the amount of the grant date fair value. date using the amount of the grant determined granted to Ms Gaines under the Peformance Rights Plan unless Ms Gaines to the Peformance under granted rights rights granted No. share share No. period 30/6/17 242,858 30/6/18 $2.37 612,432 30/6/17 $575,573 $1.72 209,265 30/6/18 $1,053,383 n/a $2.37 527,720 30/6/19 n/a $495,958 n/a $1.72 252,727 $4.61 n/a n/a $907,678 242,858 $1,165,071 612,432 n/a n/a n/a 209,265 n/a n/a242,727 527,720 30/6/17 660,837 30/6/18 $2.37 1,666,482 30/6/19 $1,566,184 $1.72 $2,866,349 798,085 Nil $4.61 in 2018 Determined Nil $3,679,172 660,837 in 2019 Determined 1/7/14 to 1/7/14 to 1/7/15 to 1/7/14 to 1/7/15 to 1/7/16 to 1/7/14 to 1/7/14 to 1/7/15 to 1/7/16 to Performance Performance date Grant Grant LTIP LTIP plan FY16 14/12/2015 FY15 9/12/2014 FY16 14/12/2015 FY17 20/09/2016 FY15 9/12/2014 FY15 9/12/2014 FY16 14/12/2015 FY17 20/09/2016 the FY17 LTIP. share rights under the FY17 LTIP rights under share the right, the impact of dilution, the share price at grant date, expected price volatility of the underlying share, the effect expected of the underlying share, volatility price date, at grant the right, the impact price of dilution, the share fo rate interest factor and the risk free conversion share estimated the expected dividend yield, additional market conditions, binomial tree and Monte-Carlo simulation. The fair value estimation takes into account the exercise price, the effective life of life the effective price, the exercise account takes into fair value estimation The and Monte-Carlobinomial tree simulation. the term of the right the term N Power Remuneration Report N Cernotta S Pearce

6.4 Details of share based payments relating to LTIP relating based payments Details of share 6.4 ended years during the financial under the LTIP rights granted details of the number of share table provides following The value of the rights has been The 30 June 2017. 30 June 2015 to analytical approaches, of performance using a combination fair value of the long term rights was determined estimated The • • Mr Cernotta’s share rights were forfeited upon cessation of employment on 31 January of employment upon cessation forfeited 2017 rights were share • Mr Cernotta’s rights under share not granted performance period and were Ms Gaines during the LTIP and Mr commenced Lilleyman • 6.3 Details of performance grants to executive directors to executive of performance6.3 Details grants for Ms Gaines approval Shareholder of as a minimum delivered the ESSIP is participateMs Gaines to is eligible Generally, the FY17 ESSIP on a pro-rata in basis. the 2017 Annual General Meeting. is obtained at approval shareholder holdings if of shareholders interest participants rights to a diluting effect on the percentage issue of share The will not have any was not granted 2016. Mr on 31 December Pearce of employment upon cessation forfeited rights were share Mr Pearce’s • 6 is reported (continued) remuneration executive How 50 per cent in vested rights (with the ability to elect up to 100 per cent). Under ASX Listing Rule 10.14, the Company requires rights (with the ability elect Listing Rule 10.14, the Company Under ASX to 100 per cent). in vested up to 50 per cent plan. Ms Gaines has incentive under an employee of the Company issue equity a Director to securities to approval shareholder approval. subject shareholder rights, to of the FY17 ESSIP in vested 100 per cent elected receive to issue equity to under the performance securities at the 2017 AGM approval will seek shareholder the Company Accordingly, Ms Gainesrights plan to as follows: with the ESSIP in accordance year ended 30 June 2017 rights in respect of financial • 89,823 share LTIP. with the ESSIP and 2018 in accordance year ending 30 June rights in respect the financial of • 366,865 share rights will be no share and granted been rights have No share on market. acquired shares into rights vest share Remuneration Report

7 Executive contract terms

Total Remuneration Package and other terms of employment for Executives are formalised in a service agreement.

The CEO and Executives are employed on a rolling basis with no specified fixed term. The CEO and Executives are remunerated on a total fixed remuneration (TFR) basis inclusive of superannuationand allowances. There was no remuneration increase or changes in terms in FY17.

The major terms of the agreements relating to remuneration are set out in the table below:

Maximum Maximum Nominal ESSIP opportunity LTIP opportunity value of total remuneration package at maximum opportunity Position Executive TFR* (A$) % of TFR A$ % of TFR A$ A$ Chief Executive Officer N Power 2,000,000 112.5 2,250,000 150 3,000,000 7,250,000 Chief Financial Officer E Gaines 1,102,500 75 826,875 100 1,102,500 3,031,875 Director Operations G Lilleyman 1,000,000 75 750,000 100 1,000,000 2,750,000 * Total Fixed Remuneration as of 30 June 2017. Reviewed annually by the RNC

The FY17 ESSIP additional stretch objective was introduced by the Board for FY17 only and, therefore, does not form part of the maximum ESSIP opportunity on an ongoing basis.

Executives are required to provide written notice of three or six months (as specified in their individual service agreement) to terminate their employment. Should executives not provide sufficient notice they will forfeit the monetary equivalent (calculated based on TFR) of any shortfall in the notice period.

Termination benefits for KMP comply with the limits set by theCorporations Act 2001 that do not require shareholder approval.

128 FORTESCUE METALS GROUP LIMITED I REMUNERATION REPORT Operating Ore Reserves Corporate Social Overview Governance Financial Report Remuneration Report Corporate Directory 129 and Financial Review and Mineral Resources Responsibility

2017 ANNUAL REPORT

I 0 FORTESCUE METALS GROUP LIMITED METALS FORTESCUE took into account a general increase of 10 per cent, of 10 per cent, a general increase account into took * Vice ChairVice Independent DirectorLead DirectorNon-Executive Chair & Risk ManagementAudit Committee Member & Risk ManagementAudit Committee Chair Remuneration & Nomination Committee MemberRemuneration & Nomination Committee of RepresentativesChina Advisory Board Group Sub-Committee MemberFinance 44,000 16,500 44,000 187,000 16,500 66,000 154,000 187,000 6,600 * The Chairman of the Board has elected to forego Directors fees for FY17 and received no form of remuneration in FY17. of remuneration no form FY17 and received for fees Directors has elected forego to Chairman of the Board The * programs nor do they participate incentive benefits, in any retirement do not receive Directors Non-Executive of the Company. Position Position Chairman Board A$ Fee together with the alignment of the relativities in ARMC and RNC fees. The increase in fees does not exceed the shareholder the shareholder does not exceed in fees increase The fees. in ARMC and RNC of the relativities with the alignment together cap of A$2.0 million. fee total approved recognises the additional time commitment required by NEDs who serve on a Committee. NEDs who serve by a Committee. on required time commitment the additional recognises pool since fee the aggregate been no changes to have There 2010. on 19 November annual general meeting 2010. November of NED fees consideration The Associates. Egan by provided Remuneration Report outlined in the table below: 1 July 2016 are from of superannuation) effective (inclusive NED fees serving for on a Committee of additional fees payment The membership. and Committee both Board for fees NEDs receive at the shareholders by is A$2.0 million, which was approved NEDs to payable remuneration maximum aggregate The data market position and benchmark commentary, to regard NEDs having to payable the fees reviewed Board The 8.1 NED remuneration policy remuneration NED 8.1 are: that NED fees policy requires remuneration on NED Fortescue’s their independence and safeguard responsibilities of their reflect the nature to risk’ ‘at • Not companies. of comparable with NED remuneration comparable set at levels fees with • Market competitive pool 8.2 NED fee 8 remuneration Director (NED) Non-Executive Remuneration Report

8 Non-Executive Director (NED) remuneration (continued)

8.2 NED fee pool (continued)

The remuneration of Non-Executive Directors for the year ended 30 June 2017 and 30 June 2016 is detailed below: FY17 $A Base fees Committee fees Other benefits Superannuation Total

A Forrest - - - - - O Hegarty1 72,831 6,426 - 22,493 101,750 M Barnaba 169,231 58,591 - 23,921 251,743 E Gaines2 83,371 12,505 - 9,817 105,693 C Huiquan 154,000 - - - 154,000 G Raby3 81,596 28,404 - - 110,000 S Warburton 139,367 51,551 - 20,046 210,964 J Baderschneider 154,000 - - - 154,000 J Morris4 87,025 10,666 - 10,257 107,948 P Bingham-Hall5 87,025 7,466 - 9,921 104,412

1 O Hegarty retired 5 December 2016. ² E Gaines commenced as CFO and Executive Director on 6 February 2017. ³ G Raby retired 5 December 2016. 4 J Morris appointed 16 November 2016. 5 P Bingham-Hall appointed 16 November 2016.

FY16 $A Base fees Committee fees Other benefits Superannuation Total

A Forrest - - - - - O Hegarty 153,846 6,787 - 16,866 177,499 M Barnaba 153,846 48,416 - 21,237 223,499 E Gaines 126,697 19,005 - 15,299 161,001 C Huiquan 140,000 - - - 140,000 G Raby 140,000 60,000 - - 200,000 S Warburton 126,697 27,150 - 16,154 170,001 J Baderschneider 140,000 - - - 140,000

NEDs receive fees for both Board and Committee membership. The payment of additional fees for serving on a Committee recognises the additional time commitment required by NEDs who serve on a Committee.

130 FORTESCUE METALS GROUP LIMITED I REMUNERATION REPORT Operating Ore Reserves Corporate Social Overview Governance Financial Report Remuneration Report Corporate Directory 131 and Financial Review and Mineral Resources Responsibility

Not Not exercisable exercisable 2017 ANNUAL REPORT

I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE the year Vested Unvested the year Vested Unvested the end of Balance at at Balance the end of Balance at at Balance P Bingham-Hall appointed 16 November 2016. 16 November P Bingham-Hall appointed 2016. 31 December employment ceased S Pearce on 1 January employment G Lilleyman commenced 2017. 31 January employment ceased N Cernotta 2017. P Meurs retired on 18 April 2016. P Meurs retired 2 6 7 8 9 lapsed lapsed Forfeited / Forfeited Forfeited / Forfeited converted converted Exercised / Exercised Exercised / Exercised ------1 1 ------99,761 - - 99,761 - 99,761 99,761 ------877,929 842,094 (235,881) (1,484,142) - - - - 934,880 347,500 (195,250) (1,087,130) - - - - 1,416,675 - (312,593) (1,104,082) - - - - the start the start Balance at at Balance Balance at at Balance of the year Granted of the year Granted 6 8 9 2 3 7 2 5 4 held directly, indirectly or beneficially, by each of the KMP, including their related partiesrelated follows: including their is as by each of the KMP, indirectly or beneficially, held directly, term performance rights plans, as disclosed in note 18 of the financial report. 18 of the financial performance as disclosed in note term rights plans, E Gaines commenced as CFO and Executive Director on 6 February 2017. on 6 February Director as CFO and Executive E Gaines commenced 2016. 5 December G Raby retired 2016. 16 November J Morris appointed Directors of Fortescue Directors of Fortescue P Bingham-Hall S Pearce N Cernotta O Hegarty C HuiquanG Raby M BarnabaS WarburtonJ Baderschneider -J Morris ------G Lilleyman N Cernotta 287,740 725,615 (66,311) (12,164) 934,880 - 934,800 934,800 A Forrest------A N Power Raby------E GainesO Hegarty Warburton------2,307,503C HuiquanG 2,291,413M Barnaba (714,736)S - (78,930) - J Baderschneider 3,805,250 - P Meurs - - - 3,805,250 3,805,250 FY16 Other key management personnel of Fortescue management Other key A ForrestN PowerE Gaines 3,805,250 - 1,097,367 (838,181) (639,750) - 3,424,686 - - 3,424,686 3,424,686 - - - - - FY17 Other key management personnel of Fortescue management Other key S Pearce 914,358 842,094 (304,413) (35,364) 1,416,675 - 1,416,675 1,416,675 Performance Rights were granted in accordance with the short and long term in accordance granted Rights were Performance report. 18 of the financial as disclosed in note performanceterm rights plans, Performance rights were granted in accordance with the short and long term in accordance granted rights were Performance O Hegarty 2016. 5 December retired Remuneration Report 1 1 2 3 4 5 9.1 Share rights rights Share 9.1 ordinary in the Company during the reporting shares rights over period in the number of share movement The 9 personnel management to key relating disclosures Equity instrument Remuneration Report

9 Equity instrument disclosures relating to key management personnel (continued)

9.2 Share holdings (Ordinary Shares)

The numbers of shares in the Company held during the financial year by each Director of Fortescue and other key management personnel of the Group, including their related parties, are set out below:

Held Received on Held at conversion at FY17 1 July 2016 of rights Issued Purchases Sales Transfers Other1 30 June 2017

Directors of Fortescue A Forrest 1,037,479,247 - - 1,320,753 - - - 1,038,800,000 N Power 2,526,307 838,181 - - (413,250) - - 2,951,238 O Hegarty2 40,000 - - - - - (40,000) - C Huiquan ------G Raby4 8,000 - - - - - (8,000) - M Barnaba 20,000 ------20,000 E Gaines3 50,000 ------50,000 S Warburton 50,750 ------50,750 J Baderschneider 138,000 ------138,000 J Morris5 ------P Bingham-Hall6 - - - 35,000 - - - 35,000 S Pearce7 227,305 312,593 - 104 - - (540,002) -

Other key management personnel of Fortescue G Lilleyman8 ------N Cernotta9 50,000 195,250 - - - - (245,250) -

1 Negative amounts reflect the result of leaving the Company 5 J Morris appointed 16 November 2016. during the year. 6 P Bingham-Hall appointed 16 November 2016. 2 O Hegarty retired 5 December 2016. 7 S Pearce ceased employment 31 December 2016. 3 E Gaines commenced as CFO and Executive Director on 8 G Lilleyman commenced employment on 1 January 2017. 6 February 2017. 9 N Cernotta ceased employment 31 January 2017. 4 G Raby retired 5 December 2016.

Received Held on Held at conversion at FY16 1 July 2015 of rights Issued Purchases Sales Transfers Other1 30 June 2016

Directors of Fortescue A Forrest 1,037,479,247 ------1,037,479,247 N Power 1,811,571 714,736 - - - - - 2,526,307 O Hegarty 40,000 ------40,000 C Huiquan ------G Raby 8,000 ------8,000 M Barnaba 20,000 ------20,000 E Gaines 50,000 ------50,000 S Warburton 50,750 ------50,750 J Baderschneider 138,000 ------138,000 P Meurs2 26,199,152 235,881 - - (16,632,614) - (9,802,419) - S Pearce 107,557 304,413 - 2,500 (187,185) - - 227,305

Other key management personnel of Fortescue N Cernotta 18,236 66,311 - - (34,547) - - 50,000 1 Negative amounts reflect the result of leaving the 2 P Meurs retired on 18 April 2016. Company during the year.

132 FORTESCUE METALS GROUP LIMITED I REMUNERATION REPORT CORPORATE DIRECTORY

Contact information

FORTESCUE METALS GROUP LIMITED I 2017 ANNUAL REPORT 133 Shareholder information As at 31 July 2017

Top 20 holders of ordinary shares

Rank Name Units % of issued capital 1 Minderoo Group Pty Ltd 918,806,548 29.51 2 HSBC Custody Nominees (Australia) Limited 493,664,539 15.85 3 J P Morgan Nominees Australia Limited 352,009,749 11.30 4 Valin Investments (Singapore) Pte Ltd 228,007,497 7.32 5 Citicorp Nominees Pty Limited 170,399,449 5.47 6 Valin Resources Investments (Singapore) Pte Ltd 130,776,216 4.20 7 Emichrome Pty Ltd 93,045,000 2.99 8 AMNL Financing Pty Ltd 71,365,581 2.29 9 BNP Paribas Noms Pty Ltd 68,485,736 2.20 10 The Trust Company Limited 64,968,641 2.09 11 National Nominees Limited 34,280,167 1.10 12 AMNL Financing Pty Ltd 30,365,261 0.98 13 BNP Paribas Nominees Pty Ltd 27,279,102 0.88 14 Citicorp Nominees Pty Limited 15,078,443 0.48 15 The Minderoo Foundation Pty Ltd 11,310,500 0.36 16 Valin Mining Investments (Singapore) Pte Ltd 11,161,764 0.36 17 HSBC Custody Nominees (Australia) Limited-Gsco Eca 10,464,882 0.34 18 Mr William Graeme Rowley 8,244,951 0.26 19 National Nominees Limited 8,119,997 0.26 20 Ms Judith Mary Street 6,826,348 0.22 2,754,660,371 88.47

Substantial shareholders Name Total shares % of issued capital Minderoo Group Pty Ltd and John Andrew Forrest 1,038,800,000 33.36 Hunan Valin Iron and Steel Group Company 434,914,118 13.97 Capital Research Global Investors 153,284,038 4.41

Range of shares Range Total holders Units % of issued capital 1 to 1,000 22,412 10,512,774 0.34 1,001 to 5,000 19,669 49,774,106 1.60 5,001 to 10,000 4,838 36,825,549 1.18 10,001 to 100,000 3,640 92,105,631 2.96 100,001 and over 307 2,924,580,091 93.92 Total 50,866 3,113,798,151 100.00

Unmarketable parcels There were 2,164 members holding less than a marketable parcel of shares in the Company.

134 FORTESCUE METALS GROUP LIMITED I CORPORATE DIRECTORY Operating Ore Reserves Corporate Social Overview Governance Financial Report Remuneration Report Corporate Directory 135 and Financial Review and Mineral Resources Responsibility

2017 ANNUAL REPORT

I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Hectares. Hematite with an average compound ore An iron 57 per cent of between content ore iron deposits Hematite Fe. and 63 per cent the surface to close typically large, are and mined via open pits. HSES and security. environment Health, safety, ICMM on Mining Council International and The Metals act in 2001 to was established as performance improvement for a catalyst in the mining and metals industry. Agreements Indigenous Land Use (ILUA) Statutory a native between agreement and others about the use of title group land and waters. Fortescue Fortescue Limited Metals Group Fortescue and its subsidiaries. 002 594 872) (ACN Gas River Pipeline Fortescue A 270 kilometre gas pipeline which the Dampier natural gas from delivers Bunbury the main power to to Pipeline station in the Solomon Hub. FY Year. a Financial to Refers Gearing Debt / (debt + equity). GJ Gigajoules. GRI Global ReportingThe Initiative (GRI) independent is an international which has developed organisation sustainability reporting for a standard and disclosure. Ha of the Commonwealth e 2 The chemical symbol for iron. chemical symbol for The FIFO Fly-out is defined as circumstances Fly-in is of work the place where of work worker’s from the sufficiently isolated make daily to of residence place impractical. commute Total number of employees including number of employees Total and part-time.term permanent, fixed Does not include contractors. dmt Dry metric tonnes. dmtu Dry unit. metric tonne EPA Authority. Protection Environmental Fe Contractors Contractors working employees, Non-Fortescue support to specific with the Company business activities. Act Corporations 2001 Act Corporations DID Deposit. Detrital Iron Direct employees Chichester Hub with two mining hub Fortescue’s Cloudbreak mines, ore operating iron in the and Christmas Creek, located 250 kilometres approximately Pilbara, Herb Elliott south east of Fortescue’s Hedland. in Port Port CID Deposit. Channel Iron CO which is the equivalent dioxide Carbon of measure recognised internationally gas emissions. greenhouse of Australia. CFR A delivery that the indicates that term of includes the cost shipment price and marine costs costs freight goods, with a particularassociated delivery.

Australian Securities Australian Glossary bt Billion tonnes. C1 Cost processing, of mining, Operating costs rail and port basis, on a per tonne including allocation of direct and production administration charges overheads. Beneficiation is a process whereby ore ore whereby Beneficiation is a process fine particles into is pulverised and the often is separated, material higher grade the gangue (waste). from magnetically, BID Deposit. Bedded Iron Beneficiation ASX Corporate Governance Principles Principles Governance ASX Corporate (Third Edition) and Recommendations and recommendations Principles the ASX by and released developed on the Council Governance Corporate practices be to governance corporate and entities ASX listed by adopted investor promote to designed which are to entities to assist listed and confidence expectations. meet shareholder ASX Securities Exchange. Australian Index ASX 100 Resource index A capitalisation-weighted the performancewhich measures of sector 100. of the ASX the resources on an end of index is calculated The basis. day AMMA MinesAustralian and Metals Association. Australian Accounting Standards Standards Accounting Australian are Standards Accounting Australian issued and maintained by developed, Standards Accounting the Australian Government an Australian Board, agency under the 2001. Act Commission and Investments Aboriginal owned businesses owned Aboriginal ventures, joint Contractors, sub-contractors or other legal entities people. Aboriginal by owned Glossary

Indicated Resource JORC Code Measured Resource As defined in the JORC Code, that part The Australasian Code for Reporting of As defined in the JORC Code, that part of a mineral resource for which tonnage, Exploration Results, Mineral Resources of a mineral resource for which tonnage densities, shape, physical characteristics, and Ore Reserves 2004 or 2012 Edition, densities, shape, physical characteristics, grade and mineral content can be as the case may be, each prepared grade and mineral content can estimated with a reasonable level of by the Joint Ore Reserves Committee be estimated with a high level of confidence. It is based on exploration, of the Australian Institute of Mining confidence. It is based on detailed and sampling and testing information and Metallurgy, Australian Institute of reliable exploration, sampling and gathered through appropriate Geoscientists and Mineral Council of testing information gathered through techniques from locations such as Australia, as amended or supplemented appropriate techniques from locations outcrops, trenches, pits, workings and from time to time. such as outcrops, trenches, pits, drill holes. The locations are too widely workings and drill holes. The locations or inappropriately spaced to confirm Key Management Personnel are spaced closely enough to confirm geological and/or grade continuity but Key Management Personnel (KMP) are geological and grade continuity. are spaced closely enough for continuity those persons having authority and to be assumed. responsibility for planning, directing mt and controlling the activities of the Million tonnes. Inferred Resource entity, directly or indirectly, including As defined in the JORC Code, that any director (whether executive or mtpa part of a mineral resource for which otherwise) of that entity. Million tonnes per annum. tonnage, grade and mineral content can be estimated with a low level of Kings CID Fines Net gearing confidence. It is inferred from geological Fortescue’s stand-alone product (Debt - cash) / (debt - cash + equity). evidence and assumed but not verified produced from Channel Iron Deposit Ore NGER geological and/or grade continuity. It is from its Kings mine in the Solomon Hub, based on information gathered through with an iron grade of 57.3 per cent Fe. The National Greenhouse and Energy appropriate techniques from locations Reporting (NGER) Scheme was kL such as outcrops, trenches, pits, introduced in 2007 to provide data and workings and drill holes which Kilolitre. accounting in relation to Greenhouse may be limited or of uncertain quality Gas emissions and energy consumption Local supplier and reliability. and production. The NGER Scheme Suppliers based in the Pilbara region. operates under the National Greenhouse International Financial Reporting and Energy Reporting Act 2007 (NGER Act). LOM Standards Life of Mine, being the number of years NPAT International Financial Reporting over which available reserves will be Standards (IFRS) is a single set of Net profit after tax. extracted. accounting standards, developed OPF and maintained by the IASB with the 3 m Ore Processing Facility. intention of those standards being Cubic metres. capable of being applied on a globally Pilbara consistent basis. Magnetite The Pilbara region in the north west of IUCN An iron ore compound that is typically a Western Australia. lower grade ore than Hematite iron ore International Union for Conservation because of a lower iron content. of Nature. Magnetite ore requires significant beneficiation to form a saleable concentrate. After beneficiation, Magnetite ore can be palletised for direct use as a high-grade raw material for steel production.

136 FORTESCUE METALS GROUP LIMITED I CORPORATE DIRECTORY Operating Ore Reserves Corporate Social Overview Governance Financial Report Remuneration Report Corporate Directory 137 and Financial Review and Mineral Resources Responsibility

2017 ANNUAL REPORT

I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE WTI Intermediate. Texas West Underlying EBITDA margin EBITDA Underlying / Operating EBITDA Underlying sales revenue. UNGC Nations Global Compact United for leadership platform a provides aligning to committed business that are and operations with their strategies principles accepted universally ten environment labour, in human rights, and anti-corruption. turnover employee Voluntary employees term and fixed Permanent for voluntarily who left Fortescue the Company. by not initiated reasons VTEC and Employment Training Vocational Centre. wmt metric tonnes. Wet WMYAC Yindjibarndi Wirlu-murra Aboriginal Corporation. A is defined Underlying EBITDA Underlying EBITD tax, interest, as earnings before and amortisation,depreciation and other exploration, development expenses. Super Special Fines Super Special Fines product ore flagship iron Fortescue’s an iron with Hub, the Chichester from Fe. of 56.4 per cent grade TRIFR Injury Recordable Frequently Total Rate per million man hours worked, restricted lost time injuries, comprising treatments. and medical work Rocket Fines Fines Rocket approximately A product containing upon shipment and Fe 59 per cent the from Fortescue by produced Hub. Chichester Senior Executive or of Director position title Leadership Manager. Group Solomon Hub operating A mining hub with two and Kings. Firetail mines, ore iron 60 approximately Hub is located The kilometres north of of the township of and 120 kilometres west Price Tom Hub that links the Chichester the railway Hedland. Port to Resources or Mineral Resources or Mineral Resources Code, in the JORC defined As occurrence or a concentration intrinsic economic of of material crust in the Earth’s in or on interest quantity and qualitysuch form, that prospects for reasonable are there The extraction. economic eventual geological grade, location, quantity, characteristics and continuity of a known, are estimated mineral resource specific geological from or interpreted Mineral and knowledge. evidence sub-divided, are in order resources confidence, geological of increasing and measured indicated inferred, into term this capitalised, Where categories. estimated Fortescue’s to refers Mineral Resources. Glossary As defined in the JORC Code, the Code, defined in the JORC As part mineable economically of a and/or an mineral resource measured It includes mineral resource. indicated and allowances diluting materials when occur may which losses, for Appropriate is mined. the material been assessments and studies have carried out, and include consideration realistically by of and modification metallurgical, assumed mining, legal, marketing, economic, social and governmental environmental, demonstrate assessments These factors. at the time of reporting extraction that Ore be justified. reasonably could sub-dividedreserves are of in order Probable into confidence increasing Reserves. Ore ReservesOre and Proved to refers this term capitalised, Where reserves. estimated Fortescue’s Reserves or Ore Reserves Reserves or Ore Proved Ore Reserve Ore Proved the Code, defined in the JORC As mineable parteconomically of a It includes mineral resource. measured and allowances diluting materials when occur losses which may for Appropriate is mined. the material been assessments and studies have carried out, and include consideration realistically by of and modification metallurgical, assumed mining, legal, marketing, economic, social and governmental environmental, assessments demonstrate These factors. at the time of reporting that extraction be justified. reasonably could Probable Ore Reserve Ore Probable the Code, defined in the JORC As part mineable economically of an in and resource, mineral indicated a measured some circumstances, It diluting includes mineral resource. losses for and allowances materials when the material occur which may assessments Appropriate is mined. out, been carried and studies have of and and include consideration realistically assumed by modification economic, metallurgical, mining, social environmental, legal, marketing, These factors. and governmental at the time assessments demonstrate of reporting that extraction could justified. be reasonably FY17 awards The 2017 financial year was a record breaking year for Fortescue.

“ These awards represent hard work and commitment and belong to the whole Fortescue family. I am in the fortunate position to be able to accept awards on behalf of everyone at Fortescue.” CEO, Nev Power

FY17 Awards FY17 Award Finalist 2017 Western Australian of the Year Mining Magazine 2016 Editors Award 2017 Australian of the Year Awards and Business Award winner • Fortescue Metals Group as the • Andrew Forrest AO • Andrew Forrest AO joint recipient, recognised for the Platts Global Metals Awards Autonomous Haulage System Officer in the Order of Australia • Nev Power, CEO of the Year • Andrew Forrest AO Mining Journal • CEO of the Year Australia-China Business Award AMMA Industry Awards • Business Excellence Award Indigenous Employment and S&P Global Platts Metals Awards for Cross-Border Investment Retention Award • Metals Company of the Year Shared Value Project for All Round Excellence Diggers and Dealers • Corporate Category • Industry Leadership Award Digger of the Year Award – Highly Commended Award – Raw Materials and Mining – Billion Opportunities WA Industry and Export Awards APAC Insider 2017 AIM WA West Business Pinnacle Award Thomson Reuters Foundation • Nev Power, CEO of the Year • Stop Slavery Award Australian Financial Review 2016 • Leading Consultants Award Business Leaders Building, – Ones to Watch in Mining Australian Export Awards Pioneers and Stirrers Award • Minerals, Energy and Related Australasian Reporting Awards • Nev Power Services Award • Annual Reporting Award Australian Financial Review – Silver Award 2016 Western Australian • Nev Power, Business Person of the Year Business Women’s Awards Marine Money • Jane Macey, Manager BusinessNews Western Australia • East Leasing Deal of the Year Award • Nev Power, Person of the Year China Development Bank and Fortescue Metals Group

138 FORTESCUE METALS GROUP LIMITED I CORPORATE DIRECTORY Operating Ore Reserves Corporate Social Overview Governance Financial Report Remuneration Report Corporate Directory 139 and Financial Review and Mineral Resources Responsibility

2017 ANNUAL REPORT

I FORTESCUE METALS GROUP LIMITED METALS FORTESCUE Fortescue reports afterFortescue net profit tax of US$1.22 billion Successful completion of Unsecured Notes Offering of Unsecured completion Successful terms to support small payment Pilbara Improved businesses Sophia of FMG arrival celebrates Fortescue Hedland in Port Fortescue completes financing agreement for financing agreement completes Fortescue Carriers Ore Fortescue Meeting highlights General Annual Fortescue to diversity performance and commitment Company Carrier Fortescue Ore its first celebrates Fortescue in China ceremony with official naming • • • • • • • May 2017 May June 2017 March 2017 March February 2017 February December 2016 December November 2016 November September 2016 in Port Hedland in Port in Port Hedland in Port in Port Hedland in Port repayment of 2019 Term Loan Term of 2019 repayment repayment of 2019 Term Loan Term of 2019 repayment supplier of iron ore into China into ore supplier of iron Fortescue announces a further a furtherannounces Fortescue • Fortescue announces US$1.0 billion US$1.0 billion announces Fortescue Fortescue announces US$700 million announces Fortescue is recognised as lowest cost seaborne seaborne cost as lowest is recognised • • Debt reduction to continue as Fortescue as Fortescue Debt reduction to continue Fortescue celebrates arrival of FMG Grace Grace of FMG arrival celebrates Fortescue • Fortescue celebrates arrival of FMG Nicola Nicola of FMG arrival celebrates Fortescue collaboration on mining sector on innovation collaboration Fortescue celebrates arrival of FMG Sydney Sydney of FMG arrival celebrates Fortescue • • • Fortescue announces FY18 innovation projects FY18 innovation announces Fortescue US$1.0 billion repayment of 2019 Term Loan Term of 2019 US$1.0 billion repayment • Fortescue VTEC’s first all-female class graduates first all-female VTEC’s Fortescue Fortescue announces A$100 million in new work work A$100 million in new announces Fortescue • • with four Aboriginal businesses and joint ventures ventures businesses and joint Aboriginal with four Fortescue and Universities announce China-Australia China-Australia announce and Universities Fortescue • FY17 announcements key Timeline Corporate Directory Contact information

Fortescue registered office Fortescue Shipping office Fortescue VTEC and Australia Shanghai, China Community office Level 2, 87 Adelaide Terrace 33/F East Building, Ellon Business Plaza 1B/2 Byass St East Perth, WA 6004 555 Pudong Ave, Pudong, Shanghai, P.R China South Hedland, WA 6722 T: +61 8 6218 8888 T: +61 8 9158 5800 F: +61 8 6218 8880 Singapore F: +61 8 6218 8880 E: [email protected] FMG International, The Central E: [email protected] 8 Eu Tong Sen St, 24-91 Singapore O59818 www.fmgl.com.au www.fmgl.com.au T: +61 8 6218 8888 F: +61 8 6218 8880 E: [email protected] www.fmgl.com.au

Stock Exchange listings

Australian Business Number Fortescue Share Registry ABN 57 002 594 872 Link Market Services Limited Level 12 QV1 Building Auditor 250 St Georges Terrace PricewaterhouseCoopers Perth, WA 6000 Level 15, 125 St Georges Terrace Locked Bag A14 Perth, WA 6000 Sydney South, NSW 1235 www.pwc.com.au T: 1300 733 136 (within Australia) T: +61 2 8280 7603 (International) Securities Exchange listings F: +61 2 9287 0309 Fortescue Metals Group Limited shares are listed www.linkmarketservices.com.au on the Australian Securities Exchange (ASX) ASX Code: FMG

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Event calendar 2017 Key dates for Fortescue shareholders in 2017. Please note dates are subject to review.

Full year results announcement Annual General Meeting 21 August 2017 8 November 2017

September Quarterly Production Report 26 October 2017

140 FORTESCUE METALS GROUP LIMITED I CORPORATE DIRECTORY Together we are Fortescue

THE DREAM BEGINS 2003 2004 Cloudbreak identified

S&P/ASX 200 index 2005

2006 Port Hedland groundbreaking FIRST ORE ON SHIP 2008

2009 27mtpa shipped

Christmas Creek expanded 2010

2011 Solomon construction begins

57.5mtpa shipped 2012 FIRETAIL OPENED AT SOLOMON 155MTPA SUSTAINABLE 2013 80.9mtpa shipped PRODUCTION Kings Valley project opened at Solomon 2014

• Anderson Point Berth 5 completion • Fortescue River Gas Pipeline completion • 500 millionth tonne of ore shipped • US$2.9 billion debt repaid in FY16 2015 • 165mtpa shipped sustainable production • 169.4mt shipped in FY16 • Fortescue celebrates arrival of first ore carrier, FMG Nicola into Port Hedland • Fortescue recognised as lowest cost iron ore supplier into China 2016

2017 • Achieved lowest ever TRIFR of 2.9 • 170.4mt shipped in FY17 THE JOURNEY CONTINUES Together we are Fortescue

www.fmgl.com.au @FortescueNews